Health Care Proposals in the President’s Fiscal Year 2025 Budget

For more about these proposals, listen to Josh Gordon, CRFB’s Director of Health Policy, on the podcast: Facing the Future

The President's Fiscal Year (FY) 2025 budget proposal includes numerous health-related policy changes – including $969 billion of additional spending, $309 billion of cost reductions, and $814 billion of Medicare-related revenue increases. The proposals generally mirror those in the President’s FY 2024 budget.  

The budget highlights some important opportunities for savings on health care spending. Yet, given the substantial long-term growth of health care costs and federal spending on health care, the proposals could go further. The proposal for new revenue devoted to the Medicare Part A Hospital Insurance (HI) trust fund is bold and essential, and the trust fund proposals, in total, are enough to sustain solvency. However, some of the money is simply shifted from elsewhere in the budget, and there is no attempt to reduce the cost of Medicare hospital spending – representing a lost opportunity to lower costs for taxpayers and beneficiaries. 

Health Care Policy Proposals in the President's FY 2025 Budget

Policy  2024-2034 Cost/Savings (-)
Spending Increases $969 billion
Permanently extend enhanced premium tax credits $273 billion
Permanently extend coverage to low-income individuals in states that have not expanded Medicaid $200 billion
Increase Indian Health Service funding $202 billion
Improve Medicaid home- and community- based services and other long-term services and supports $151 billion
Improve access to behavioral health care in private insurance market $31 billion
Strengthen biodefense to protect against 21st century biothreats  $20 billion
Require coverage of three behavioral health visits and three primary care visits without cost-sharing $19 billion
Provide pathway to double funding for the Health Center Program $17 billion
Establish the Vaccines for Adults program $12 billion
Convert Medicaid demonstration to improve community mental health services into a permanent program $11 billion
Other health spending $33 billion
Spending Reductions -$309 billion
Expand Medicare drug negotiations, extend inflation rebates and out-of-pocket cost caps to build on the IRA drug provisions -$200 billion
Require remittance of medical loss ratios in Medicaid and CHIP managed care -$10 billion
Other spending reductions -$34 billion
Medicare portion of sequester extension* -$65 billion
Tax Increases -$814 billion
Apply the Net Investment Income Tax to pass-through business income of high-income tax payers -$402 billion
Increase the Net Investment Income Tax rate for high income taxpayers  -$412 billion

Sources: Office of Management and Budget and Committee for a Responsible Federal Budget.
Numbers may not sum due to rounding. *Estimated

Spending Increases 

The budget proposes spending $273 billion to permanently extend the more generous Affordable Care Act marketplace subsidies currently set to expire in 2025. It also proposes a program for “Medicaid-like” coverage for low-income individuals in states that have not expanded Medicaid, along with continued financial incentives to ensure states maintain their existing expansions, at a cost of $200 billion.  

The President’s budget allocates an additional $202 billion to the Indian Health Service (IHS) and permanently shifts all IHS funding from discretionary to mandatory spending. The budget includes $151 billion for Medicaid home- and community-based services and other long-term services and supports. It also increases spending for behavioral health, mental health, and other public health initiatives at a cost of $143 billion. 

Deficit-Reducing Health Savings 

The largest health care spending reductions in the budget, saving $200 billion, come from changes to the Inflation Reduction Act’s (IRA) prescription drug provisions, including expanding the number of drugs subject to negotiation, shortening the time between a drug entering the market and being subject to negotiations, and extending inflation rebates that are currently just in effect for Medicare to the commercial market. There are a number of smaller prescription drug and other health care policies that would save another $43 billion. Some of these include a proposal to require the remittance of medical loss ratios in Medicaid and Children's Health Insurance Program (CHIP) managed care ($10 billion), further Medicaid and CHIP drug rebates ($7 billion), capture more health care fraud ($5 billion), and extending surprise billing protections to ground ambulances ($1 billion). 

Included is also over $4 billion of savings from a national program to eliminate hepatitis C. However, savings from such investments in preventative care are often difficult to achieve quickly, and last year’s budget suggested the effort would actually cost over $5 billion. 

One of the new proposals in the President’s budget is to ban hospital ‘facility fees’ for private insurance payment of telehealth and some outpatient services – a promising development on the road towards site-neutral payment policies. Unfortunately, the proposal would only save $2 billion. We wish the Administration would have gone further by echoing the budgets of Presidents Obama and Trump in support of broader site-neutral payments in Medicare, which could save at least $180 billion over a decade. 

The budget also includes savings of $90 billion from extending the mandatory sequester, originally enacted in the Budget Control Act of 2011, for 2033 and 2034. Around $65 billion of the sequester’s savings come from its 2 percent across-the-board reduction in Medicare payments. 

It is worth noting that the budget takes the $200 billion of prescription drug policy savings, which largely accrue to Medicare Parts B and D, and dedicates them to the Part A trust fund. While these are real budgetary savings, it would be better if those savings remained in Parts B and D – which have their own problem of high and growing costs. 

New Revenue Policies and the HI Trust Fund 

The budget proposes two ways to increase federal revenue and dedicates those funds to the HI trust fund. The first involves raising $402 billion of new revenue from closing Medicare tax loopholes that allow some business income to avoid the Net Investment Income Tax (NIIT) and payroll taxes for the self-employed. The second comes from an increase in the NIIT and Medicare payroll tax rates for those earning more than $400,000 per year, from 3.8 percent to 5 percent, raising $412 billion. 

These reforms represent real and new resources for the federal budget to increase Medicare HI solvency and are worthy of commendation. However, the budget also proposes to dedicate the existing revenue from the current NIIT to the trust fund. This amounts to a $523 billion general-revenue transfer that would strengthen Medicare on paper without truly improving its financing, and it worsens the budget outlook outside of the trust fund.  

All told, the budget produces $1.54 trillion of total revenue credited to the HI trust fund. This is the combination of the new revenue policies ($814 billion), the general revenue transfer of the current NIIT ($523 billion), and the prescription drug savings ($200 billion). According to Medicare’s Chief Actuary, this influx of funds is enough to “indefinitely” fund the Medicare Hospital Insurance trust fund, making it solvent for at least 75 years.