Republicans Pursue Trump Budget Deal with Medicaid as a Key Focus

Congressional Republicans need to cut federal spending by hundreds of billions annually to extend Trump’s 2017 tax cuts, add a few more, and fund several new White House spending priorities. Trump wants all this done in one “big, beautiful bill.” If their slim majorities in the House and Senate can’t reach a consensus on how to do it, the deal could collapse.

The problem is that they cannot accomplish this goal without slashing one or more of the “big three” entitlement programs: Social Security, Medicare or Medicaid. Collectively, they account for roughly half of all federal spending. Most analysts believe that Medicaid is on the menu.

The Stakes Are High

Speaker Johnson wants a budget deal by the end of May, but negotiations could drag on into August or September. That’s when Congress must raise the nation’s borrowing limit or default on our nation’s debts. If default occurs, already shaky global confidence in the good faith and credit of the United States will go up in smoke. Conversely, Trump’s “big beautiful bill” could hurt a lot of voters, and hurting voters is rarely a winning strategy for members of Congress.

How We Got Here

During Trump’s 2016 Presidential campaign, he promised to eliminate the federal debt in eight years. Instead, he pushed his 2017 tax cuts, which largely benefited the wealthy, and approved large increases in federal spending. Collectively, these actions added more than $8 trillion to the national debt over ten years, according to the Committee for a Responsible Federal Budget. Congress can’t let that happen again.

Who Wins and Who Loses If Agreement Is Reached?

If Trump’s tax cuts are extended, households in the top 1% of earners will get an average tax cut of more than $60,000, compared to $500 per household for the bottom 60%. Two-thirds of the foregone tax revenue will go to families in the top fifth of incomes, according to the Tax Policy Center.

Two months ago, the House of Representatives adopted a budget resolution that calls for $2 trillion in cuts to mandatory spending over the next decade, including $880 billion from the part of the budget that funds Medicaid and Medicare. If Medicaid is slashed, lower-income Americans will lose far more than they gain from their modest tax breaks.

Cutting Medicaid Will Have Dire Consequences

Steve Bannon, a former Trump adviser, has warned Republicans of the political risks. “Medicaid, you gotta be careful,” He told listeners to his podcast, “Because a lot of MAGAs are on Medicaid, I’m telling you. If you don’t think so, you are dead wrong.”

Bannon has a point. Medicaid helps one in five low-income Americans, and half of U.S. children, get primary and acute care. Medicaid also sponsors six in ten nursing home residents. Fully half of Medicaid’s 70 million recipients live in states Trump won in the 2024 election, according to a Reuters analysis.

Medicaid also sustain thousands of primary care practices, clinics, hospitals, nursing homes, and healthcare workers nationwide. If its low reimbursement rates are reduced further, or millions of beneficiaries are pushed off its rolls, a wave of facility closures could follow – starting with many rural hospitals. With nowhere else to go, patients will turn to overcrowded emergency rooms. Costs will rise and everyone’s access to care will decline.

That’s a lot of pain for no real gain.

A Better Way To Reduce Federal Spending

Senate Budget Committee Chairman Lindsey Graham recently declared, “If you don’t reform Medicaid, I don’t think you’ll get there. It needs to be reformed.”

Sen Graham has misdiagnosed the problem. Medicaid and Medicare are expensive because American healthcare is outrageously expensive. Until Congress wakes up and recognizes that fact, we’ll never “get there.”

Over the last 15 years, aggregate national spending on healthcare doubled from $2.5 trillion to $5 trillion per year. Healthcare accounts for more economic activity in the U.S. than manufacturing, financial services, energy, or tech. Nearly half of its cost is covered by the federal government through a mix of mandatory and discretionary health programs, and tax subsidies for employer-sponsored health insurance.

Every other high-income country spends less, covers everyone and achieves better health outcomes than we do. If we simply reduced per capita spending to match the world’s second most expensive healthcare system, Germany, we’d save $1.8 trillion annually.

Four Strategies To Reduce Costs and Achieve Better Health

1. Strengthen Primary Care – After decades of underinvestment, US primary care struggles to meet patients’ needs, particularly in rural and underserved urban communities. Boosting payments, promoting team-based care and adopting innovative practice models would improve Americans’ health and reduce overall costs.
2. Incentivize Cost-Lowering Products and Technologies – In recent decades, health technology has driven half of spending growth. Changing incentives to encourage development and adoption of cost-lowering technologies would unleash a new era of innovation.
3. Reign in the Middlemen – Hospitals, doctors, and drug companies are frquently criticized for high prices, but a large share of U.S. healthcare spending is consumed by a companies that occupy the middle of the value chain and profit from the system’s complexity. In 2022, the combined revenues of nine healthcare intermediaries accounted for nearly 45% of healthcare spending, according to The Economist.
4. Protect Americans’ Health – In the 20^th Century, the average life expectancy of Americans increased by 30 years. Twenty-five years of that gain were due to public health. Unfortunately, public health is being rapidly degraded by Elon Musk and RFK Jr. On the short term, all Congress can do is limit further damage. Otherwise, rates of disease, injury and death will rise, along with healthcare spending.

What’s Next?

Rather than renewing all of Trump’s costly tax cuts, Congressional Republicans could focus on those that benefit the bottom 60% of earners. This would give Trump a partial win, avoid hurting his base, and prevent ruinous cuts to Medicaid. Once done, Congress should focus on reducing healthcare costs for everyone. This is the surest path to long-term deficit reduction.

Are these ideas dead on arrival? Perhaps. However, on April 15, Trump signed an executive order to lower drug prices, boost the transparency of fees charged by middlemen, and trim Medicare payments for outpatient services provided by hospitals. This suggests he recognizes the value of lowering healthcare costs. That same day, frustrated citizens at a town hall in Southeastern Iowa urged Senator Chuck Grassley to stand up to Trump. Although he defended Republicans’ plan to extend Trump’s tax cuts, he expressed “openness” to raising the tax rate for top earners, according to CNN.

Given the downward trajectory of the U.S. economy and the falling value of the dollar, Americans of modest means need a break. Cutting the cost of healthcare, rather than the means to pay for it, is a great place to start.

The views of the author are his own. They do not neccessarily represent those of any past or current employer