No, Trump’s Budget Doesn’t “Cut” $500B From Medicare

Meme claiming Trump's budget cuts $500 billion from Medicare

This meme originates from the page Social Security Works and was also shared by other large pages like Occupy Democrats, along with similar articles from the legacy media, like this and this. Many pointed out Trump’s seeming hypocrisy from his recent State of the Union speech where he claimed he wouldn’t touch people’s Social Security and Medicare in the 2021 budget, yet has these supposed cuts. However, these claims of massive budget cuts are highly misleading without understanding the context behind them.

After all, last year’s budget proposal got almost the same reaction, as headlines claiming Trump’s budget cut Medicare and Medicaid popped up, yet the cuts never came. Joe Biden even made the claim that Trump was cutting $845B, which caused PolitiFact to issue a “mostly false” verdict. They pointed out not only would the same logic apply to Obama’s budget proposals (which supposedly “cut” $420B) but the entire framing of the issue is wrong. I agree, although their analysis didn’t go far enough frankly, so here’s my take on it.

What a “Cut” Means Here

When most people see “Trump budget cuts Medicare by $500B” they envision substantial cuts to the program and people’s benefits. However, if one looks at the actual budget proposal (something almost no one does) they’ll see an entirely different reality.

On page 112, we see that under Trump’s proposed budget, Medicare spending goes from $694B in 2020 to $1.269T in 2030. That’s practically a doubling of spending on the program! So why are some calling this a cut? Because the baseline budget assumption has a different baked-in projection. The baseline budget (on page 111) has Medicare going from $694B to $1.399T, an actual doubling by 2030. Thus, if all the Medicare spending is added up from 2021-2030, Trump’s proposal includes $756B less than the baseline projection.

In normal English, the Trump budget calls for an increase of $594B in Medicare by 2030. Even as a percent of GDP, it’s an increase from 3.1% to 3.5%. Compared to the baseline budget projection, Trump’s budget calls for a reduction of $756B in Medicare spending. There are no cuts, this is a deliberately misleading term that only gets used with government spending.

How are the Projected Reductions Achieved?

This is the next logical question. Are the proposed budget reductions from cutting the benefits of Medicare recipients? If so, then even if not an actual spending cut, one could understand it as a cut in Medicare. The answer is no, there are no plans to cut Medicare benefits. The proposed reductions in spending compared to the baseline comes from several aspects of reforming the Medicare system. Some of these ideas even have bipartisan support and would be championed by Democrats. Here’s the list, with the estimated savings:

  • Equalize Hospital and Physician Payments ($165B savings)– This is a bipartisan idea which has been around for years. Essentially, Medicare pays higher rates for services provided by hospital outpatient departments (HOPD) than in a physician office, even if it’s the same service. This proposal would equalize the payments.
  • Drug Pricing Reform ($135B)- Again, a bipartisan idea that the CBO estimates would save at least $100B over 10 years. It primarily involves reforming Medicare Part D’s benefit design.
  • Move and Cap GME and DSH Spending ($140B)- Graduate Medical Education (GME) programs help compensate medical residents. A Disproportionate Share Hospital (DSH) are those hospitals which serve a high proportion of uninsured and Medicaid recipients, which the government reimburses. This proposal moves these out of Medicare/Medicaid into their own programs and caps their spending.
  • Reduce and Reform Post-Acute Care Payments ($115B)– Since extended hospital stays are prohibitively expensive and unnecessary for many patients requiring rehabilitation after a treatment, they are transferred to post-acute care facilities. It’s believed much money can be saved by reforming how this care is given and structured.
  • Reform Other Provider Payments ($40B)– Somewhat unspecified, but includes things like reducing payments for bad debt.
  • Medical Malpractice Liability Reform ($40B)
Breakdown of Trump Budget Proposed Medicare Savings: Source

Cost Saving Proposals, Not “Cuts”

As we can see, the proposals to “cut” Medicare are mostly just proposals to save money relative to the baseline, “do nothing” approach. Nowhere does the budget proposal explicitly call to cut benefits of Medicare recipients. In fact, some of these changes could arguably help Medicare recipients, as they claim to lower premiums and out of pocket costs.

The main objection to this budget proposal should not be lamenting the “cuts,” but the dubious nature of believing the government’s cost saving measures would work, or ever be implemented! All of these measures have unintended consequences and/or lobbying groups with a vested interest. For example, hospitals will hate the initiative to equalize hospital and physician payments, and likely fight against it or alter their behavior which could result in harmful consequences to the health care industry. Like most government projections, it’s likely they won’t be implemented as shown, won’t work as advertised and end up costing more than expected.

Hundreds of Billions of Medicaid Cuts?

For the most part, these “cuts” follow the same logic as Medicare. Trump’s proposed Medicaid spending goes from $447B per year in 2020 to $607B in 2030, a 36% increase (though a decrease in percentage of GDP from 2% to 1.7%). The reduction over the baseline budget for the next 10 years is $130B, mostly in cost savings proposals. These include requiring work and community engagement activities, reintroducing asset limits, and otherwise tightening eligibility requirements for able-bodied adults. The last one could potentially be seen as a cut as it makes it harder to qualify for Medicaid, although the other side would argue it lessens abuse by people who shouldn’t be using the program.

$75 Billion in Social Security Disability Cuts?

Trump’s projected budget has Social Security expenditures going from $1.092T in 2020 to $1.906T in 2030, a 75% increase. Again, the “cuts” are relative to the baseline projection, and the supposed cuts have nothing to do with retirement benefits, they only focus on the disability and supplemental insurance side of the program (which, to be fair, the meme acknowledges). The savings over the baseline budget come from proposed changes to encourage work for those collecting disability benefits and supplemental security income.

Supporters of the changes argue it will incentivize more people to work and get off disability insurance. Detractors argue it will cruelly push people off the program who are severely disabled. Budget hawks, like the Committee for a Responsible Federal Budget, simply say the planned savings are unlikely to materialize. Also keep in mind, a $75B reduction over a decade averages to just $7.5B a year. Hardly a rounding error for a program spending almost $2T/year by 2030.

Will This Budget Be Implemented?

No, there’s virtually no chance of the 2021 proposal being passed, as the Democratic-controlled House has already announced it “dead on arrival.” However, if Trump wins re-election and Republicans regain the House, it’s potentially possible that it will be pursued, which makes it relevant in that regard.

The Actual Problems With The Budget Proposal

While most of the memes and headlines lament these so-called “cuts” the proposed Trump budget has much more legitimate problems. As the independent, non-profit and non-partisan Committee for a Responsible Federal Budget outlined, it entails many unlikely scenarios and overly optimistic assumptions. Here’s the full outline of the budget proposal.

Sum of Trump’s Proposed Budget: source

Even if one believes the savings advertised by the proposal (which are highly dubious) the estimated deficit reduction is based on an projection of almost 3% GDP growth over the decade. This is wildly optimistic and unlikely. The CBO estimates a 1.7% growth rate over the same period, while the Federal Reserve calls for 1.9% and the IMF 1.6%. An annual 3% growth leaves no chance for any recessions or stagnant years (unless one thinks annual growth of 5-6% is possible to make up for it). While it’s true Trump has outperformed many expert’s expectations on the economy, this estimate seems doubtful, considering GDP growth hasn’t even reached 3% yet since he took office. Even his rabid supporters should acknowledge he’d be out of office after 2024, and it would be dubious at best to expect a 3% growth to continue.

The difference in these GDP projections is huge, as the Trump budget assumes a $36T GDP by 2030 while the CBO puts it at $32T, meaning a large disparity in tax revenues. Even with the rosy projections, fairly large deficits are estimated every year for the next decade under the Trump budget. Without the rosy projections, they become quite significant and the national debt will jump from 79% of GDP to 89%. If the economy tanks or other major events happen like a war, the deficit and debt could easily become a crisis.

This budget proposal also increases deficits in the first year, and initial spending grows considerably. As with most of these proposals to tackle the deficit, the supposed savings and spending decreases occur well into the future, and are seldom attained as a new administration will invariably come out with a new budget which claims to balance the budget in 10 years (after increasing spending initially while they’re in office, of course). The reality given the changing political landscape is that no cuts or reductions should be taken seriously unless they are implemented in the next fiscal year, and this budget proposal only increases spending and the deficit in the first year. Which makes the cries of huge “cuts” even more absurd, and the likelihood of any balanced budget ever being achieved even more remote.

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No, Trump’s Budget Doesn’t “Cut” $500B From Medicare