Capitol Insights
The Capitol Insights newsletter is provided by our regulatory affairs contractor, Capitol Associates Inc. While not specific to imaging, the newsletter covers the top federal health policy activity of the week.
How to Save $880 Billion Without Cutting Medicaid (April 28, 2025)
What Happened in Congress This Week?
Congress is out of session until Monday, April 28th.
How to Save $880 Billion Without Cutting Medicaid
The House and Senate recently passed a unified budget resolution. By doing so, Congress took an important first step toward advancing much of the Republican legislative policy agenda using the Budget Reconciliation process.
We have covered Budget Reconciliation in detail in recent editions of Capitol Insights. In short, Budget Reconciliation bills can pass in the Senate with a simple majority instead of the 60 votes that would otherwise be required. Republicans only control 53 Senate seats, and there is no realistic scenario where seven Democrats support the bill the Republicans are developing. Both parties have regularly used the Budget Reconciliation process to pass major legislation.
The next step in the process is for certain Congressional committees to develop legislation that achieves savings targets identified in the budget resolution. Under this budget resolution, the House Energy and Commerce (E&C) Committee was instructed to identify $880 billion in savings over ten years ($88 billion annually).
Most health policy experts have stated that it is incredibly difficult to achieve these savings without significantly reducing federal spending on Medicaid. We covered what these Medicaid cuts could look like in a recent edition of Capitol Insights. While this is likely correct for political reasons, it is important to understand that these savings can be achieved without cutting any federal Medicaid spending.
It is certainly possible to save $880 billion through the Medicare program. Aligning Medicare Advantage (MA) spending with traditional Medicare spending could supply almost all of these savings.
As we highlighted in last week’s edition, MedPAC data (slide 33) shows that Medicare payments to MA plans are “substantially above what spending would have been” in traditional Medicare. MedPAC now projects that Medicare will overpay MA plans (compared to traditional Medicare) by $84 billion in 2025. This is essentially all of the $88 billion in annual savings the E&C Committee would need to identify. From there, it could be relatively easy to find policies that cover the $4 billion difference, or go beyond.
There are other opportunities to identify significant savings from the Medicare Advantage Program. A recent Congressional Budget Office (CBO) report on policy options to reduce the federal budget deficit has many other recommendations. MA plans receive higher payments from Medicare to account for each enrollee’s health status based on their diagnosed conditions. MA plans are known for taking advantage of this system to earn higher risk adjustment payments. According to the CBO (page 22), reducing risk adjustment payments to MA plans could save between $124 billion and $1 trillion, depending on the approach.
Turning away from MA, the CBO report also highlights how site neutral payments - another policy option that has broad bipartisan support in Congress - could generate significant savings. Physician offices can get paid higher Medicare rates if they are owned by a hospital. Site neutral payments would pay a physician’s office the same amount regardless of whether it is independent or owned by a hospital system. Congress already passed a site neutral policy in 2015. However, practices owned by hospitals (or under construction) before the policy took effect were exempt under a grandfathering clause. According to the CBO (page 23), eliminating the grandfathering clause would save $156.9 billion. More targeted expansions of site neutral payments would save $5.6 and $7.6 billion, respectively.
Additionally, on page 19, the CBO suggests changing the Medicare benefit structure to create a defined Part A and B deductible and maximum out-of-pocket spending limit. This would be a change from Medicare’s current open-ended cost-sharing structure with no out-of-pocket maximum. Doing so could save Medicare upwards of $129 billion over ten years.
For those concerned about Social Security, rest assured that the E&C Committee doesn’t have jurisdiction over Social Security. Even if it did, reconciliation bills are not allowed to impact Social Security.
These are just some examples of ways that Congress can either completely avoid the need to cut Medicaid or, at the very least, offset some of the $880 billion savings target so that less is cut from Medicaid.
However, when accounting for political realities, it is clear that many of the alternatives suggested above will not be considered for the reconciliation bill. Many influential Republicans champion MA. Republicans have incredibly slim majorities in the House and Senate. They cannot afford to lose more than a few votes to pass their reconciliation bill. Too many Republicans would withhold their support if the bill included drastic MA reductions.
The dynamics of the slim majorities could come into play from the other side of the debate. Many Republicans are beginning to publicly oppose some of the most dramatic Medicaid spending reduction proposals. House and Senate Republicans will need to strike a careful balance to avoid jeopardizing their tenuous majorities over Medicaid cuts.
We will learn more soon as the Committee begins to put pen to paper on its portion of the reconciliation bill. The E&C Committee could mark up their bill as early as the week of May 5th.