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November 21, 2024 – When President-elect Donald Trump is inaugurated as the 47th president of the United States on January 20, 2025, he is expected to hit the ground running. A few months into his presidency, he will likely release the fiscal year (FY) 2026 president’s budget request. He could release a preliminary budget request in February or March and a full budget request in April or May. On a personal note, I worked on eight presidential budgets in my previous role at the US Department of Health and Human Services (HHS), including the first budget request that President Trump submitted to Congress in his first term.
The president’s budget is an annual exercise that every administration goes through in order to lay out its vision and priorities for the next FY and beyond. It includes both discretionary funding requests for specific federal agencies that would be handled through Congress’s appropriations process and legislative proposals for Congress’s authorizing committees to consider. Legislative proposals in the healthcare space typically involve structural reforms to the Medicare and Medicaid programs to add or refine benefits; cut costs; or address fraud, waste, or abuse. While Congress usually does not fully adopt the budget request, it is an important opportunity for the administration to show Congress and the public what it really cares about, what it is willing to invest in, and what it is willing to cut.
President Trump’s full FY 2026 budget request could include previous budget proposals as well as fresh ideas. The last budget request from Trump’s first term, the FY 2021 request (submitted to Congress in February 2020), could provide perspective on how the FY 2026 request might be structured and what overarching goals and policy ideas might be included.
The FY 2021 budget request for HHS included key priorities, with legislative proposals and funding requests tied to each one:
While some of these policy priorities could carry over to President Trump’s second term, if Robert F. Kennedy (RFK) Jr. is confirmed as HHS Secretary, this list of priorities likely will be revised with a greater focus on improving overall public health, combatting chronic diseases, evaluating the safety of food and other products regulated by the US Food and Drug Administration (FDA), and examining perceived conflicts of interest in scientific research conducted by various HHS agencies. Agency heads will also bring in their own experiences and expertise and could impact policies included in the budget. Dr. Mehmet Oz was nominated earlier this week to serve as administrator of the Centers for Medicare & Medicaid Services (CMS). Nominations for other HHS agency heads could be announced in the coming days or weeks.
The FY 2021 budget included significant reductions to discretionary spending and proposals that were projected to yield savings to the Medicare and Medicaid programs. These types of reductions, while never implemented, were consistent components of President Trump’s budget requests throughout his first term. Most Trump budget requests included targeted cuts to discretionary spending and policy ideas for Congress that would attempt to reduce the rate of growth in entitlement spending over the course of a 10-year budget window.
DISCRETIONARY
The FY 2021 discretionary HHS budget request totaled $9 billion (nearly 10%) less than 2020 levels. The National Institutes of Health (NIH) and the Centers for Disease Control and Prevention (CDC) funding requests represented large reductions from previous levels, with the NIH’s discretionary budget cut by $2.6 billion (6%) and the CDC’s discretionary budget cut by $1.3 billion (19%). The FDA saw a small increase in its proposed FY 2021 budget compared to FY 2020, but that agency could see cuts in Trump’s second term, especially if RFK Jr. is confirmed as HHS Secretary. RFK Jr. has publicly stated that he would examine FDA’s budget and potentially make reductions to FDA divisions and staff.
The budget included strategic investments in core priority areas. For example, the request provided $2.6 billion to the Assistant Secretary for Preparedness and Response – the lead HHS agency for public health emergency preparedness and response – in order to:
“Promote nationwide healthcare system readiness and response;
Deploy emergency resources and medical personnel; and
Develop and manufacture . . . drugs, diagnostics, and technologies to protect Americans from the impact of natural disasters, bioterrorism, and emerging infectious diseases including pandemic influenza.”
Thus, even if President Trump’s FY 2026 request does include less funding for HHS overall, there could be areas where the administration is willing to make an investment. These might include rural health, emergency preparedness, and technology and transparency initiatives, to name a few.
MEDICARE
The FY 2021 budget proposed several Medicare legislative reforms that, if enacted by Congress, were projected to save Medicare appropriately $756 billion over 10 years and to delay the date that the Medicare Trust Fund is expected to go bankrupt by more than 25 years. The proposals spanned many provider types and included reductions to both Medicare fee-for-service (FFS) and Medicare Advantage (MA) spending.
One proposal related to an issue that Regs & Eggs has highlighted before: site neutral payments. The Trump Administration proposed two different site neutral policies in the budget: one to pay on-campus hospital outpatient departments at the physician office rate for certain services, saving an approximate $117 billion over 10 years, and another to pay all hospital-owned physician offices located off campus at the physician office rate, which would save an additional $47 billion over 10 years.
Another major Medicare FFS budget proposal aimed to establish a unified payment system for certain post-acute providers, saving a projected $101 billion over 10 years. There was also a strong push to strengthen the integrity and sustainability of Medicare by preventing fraud, waste, and abuse. The “program integrity” section of the budget request included a proposal to expand the use of prior authorization to additional Medicare FFS items, which would save a projected $13.7 billion over 10 years.
With respect to MA, the FY 2021 budget proposed to accelerate the phase-in of a risk adjustment model built on MA encounter data. That proposal was estimated to save $41 billion over 10 years. This risk adjustment model is now in the process of being phased in, so the second Trump Administration would need to look elsewhere for significant MA savings. However, it is unclear whether the second Trump Administration will even want to reduce MA spending at all. According to CMS, enrollment in MA and other private health plans accounts for more than 50% of total Medicare enrollment. MA plans have expressed concerns about recent policies under the Biden Administration and their potential impact on Medicare beneficiaries. In the wake of a 0.16% reduction to base payments for 2025, some plans have stated that they may not be able to continue providing certain supplemental benefits to their enrollees. Given the popularity of MA, the second Trump Administration may look to increase base payments for MA plans to ensure that they can continue providing these supplemental benefits. The Trump Administration may also consider other ways to expand MA coverage, provide more flexibility to allow plans to offer additional benefits and make it easier for individuals to enroll in MA through third-party agents and brokers.
MEDICAID
The most significant proposed reductions to spending in the FY 2021 president’s budget were to the Medicaid program. In total, the FY 2021 budget would cut Medicaid spending by almost $1 trillion over 10 years. Most of the savings came through the proposed implementation of a Medicaid block grant initiative that the Trump Administration had previously announced, which would cap federal funding for a segment of a state’s adult Medicaid population. The budget also included a “work requirement” for Medicaid, requiring Medicaid enrollees who were “able-bodied, working-age individuals” to find employment, train for work, or volunteer (community service) to receive benefits. This proposal would save $152 billion over 10 years. The second Trump Administration could possibly revisit some of these ideas to make a large dent in federal entitlement spending.
While these are just some of the proposals in the FY 2021 budget request, they could provide a good indication of the kinds of policies the second Trump Administration will pursue. In an effort to reduce overall spending (and in line with the goals of the new Department of Government Efficiency), the Trump Administration might look to this old playbook for ideas on how to lower overall discretionary spending and get savings out of Medicare and Medicaid.
Until next week, this is Jeffrey saying, enjoy reading regs with your eggs.
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