January 29, 2018

New Tax Law and its impact on Medicare and Medicaid

On December 22, 2017, President Trump signed H.R. 1 into law, giving permanent and massive tax cuts to corporations and wealthy Americans. The tax cuts are partially funded by eliminating health insurance for 13 million Americans and limiting tax deductions that benefit lower and middle-income Americans. The new tax law is estimated to increase the deficit by $1.5 trillion.


The budget blueprint will require $473 billion in cuts to Medicare and over $1 trillion in cuts to Medicaid. While the appropriations bill to fund the government in 2018, expected later this year, may not contain Medicare and Medicaid cuts, the House leadership has indicated that they plan to make those cuts in 2019. Further, the budget will put pressure on both the Medicare and Medicaid programs, which will justify future cuts.


Since the new tax law significantly increases the federal deficit, it triggers PAYGO, a budget rule requiring across-the-board cuts to many mandatory programs, including Medicare. PAYGO requires $410 billion in cuts to Medicare over 10 years, with $25 billion in cuts in 2018. While Congress included a provision waiving the cuts in 2018 in the resolution funding the government, there is no certainty for 2019. Furthermore, the increased deficit will continue to put pressure on Congress to make cuts to Medicare, as well as Medicaid and several other government assistance programs that help low-income seniors. House Speaker Paul Ryan has said that he wants to pass legislation to make significant cuts to these programs during 2018.


The new tax law requires that the chained CPI, a lower measure of inflation, be used to calculate tax brackets and the standard deduction. Congressional Republicans may push legislation requiring that the chained CPI also be used to calculate cost-of-living adjustments (COLAs) for Social Security beneficiaries. Using the chained CPI to calculate COLAS, will lead to a benefit cut to seniors and disabled beneficiaries.

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