CBO report warns of nearly $500B in potential Medicare cuts

Medicare and other federal programs could see deep cuts under the Statutory Pay-As-You-Go Act of 2010 after the One Big Beautiful Bill Act was passed on July 4, according to an Aug. 15 Congressional Budget Office letter.

The S-PAYGO act, enacted under former President Barack Obama, helps require Congress to ensure new legislation is budget neutral. Should lawmakers pass legislation that increases the deficit, the law enforces the threat of sequestration to counterbalance excess costs.

The letter, signed by CBO Director Phillip Swagel, was requested by U.S. Democratic Sens. Sheldon Whitehouse, Jeff Merkley, Ron Wyden and Brendan Boyle.

The CBO estimated that the legislation will increase the federal deficit by $2.1 trillion from 2025 to 2029, and by $3.4 trillion through 2034. The Office of Management Budget would be required under S-PAYGO rules to order automatic spending cuts to offset the increases unless corrective legislation is passed by Congress.

The letter suggested this action could set off a $415 billion sequestration in fiscal 2026. Medicare cuts would also be capped at 4%, totalling around $45 billion in 2026 and leaving $370 billion in other direct spending account cuts. Major programs like low-income assistance and Social Security would be exempt, leaving around $120 billion in available budgetary resources, much less than the required reduction. 

“The 4 percent maximum reduction in Medicare spending would continue to apply to sequestration orders for years after 2026,” the letter said. “If OMB ordered a sequestration of $415 billion for each year through 2029 and $339 billion each year from 2030 through 2034, the ordered reductions in Medicare spending would increase to $76 billion in 2034 and would total $491 billion over the 2027–2034 period.” 

The letter also said that required cuts for other affected programs from 2027 to 2034 would exceed the total available funds for said programs, even if all of their other resources were removed. 

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