How will Medicare Cuts in the One Big Beautiful Bill Act Affect Rural Healthcare?

President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on January 4, 2025. Buried within the 330-page bill are a handful of provisions on Medicare. These changes — along with changes to Medicaid — could have a tangible effect on hospital revenues and on the health and well-being of seniors, especially those in rural communities.

Most of the healthcare-related discussions about the OBBBA have focused on Medicaid, but today we want to look into Medicare. The cuts to Medicare may not be as drastic, but they are just as noteworthy. Today, we want to answer the following questions:

• What is Medicare?
• What did the OBBBA change about Medicare?
• How do Medicaid cuts affect Medicare?
• How will the healthcare cuts in the OBBBA affect rural populations?
• How will the healthcare cuts in the OBBBA affect healthcare entities?

What is Medicare?

Medicare is a federally backed health insurance program for people aged 65 and older. People with disabilities and people with certain ailments (like those with end-stage renal disease and ALS) may also be eligible.

What are the key provisions in the OBBBA relating to Medicare?

While there were several changes to Medicaid within the OBBBA, there weren’t many Medicare-specific provisions. The most noteworthy are:

Lawful Presence Requirement
Effective January 1, 2027, asylum recipients, refugees, and individuals with temporary protected status will no longer qualify for Medicare coverage.

Sequestration Trigger
Automatic spending cuts due to projected deficit increases, resulting in a $500 billion reduction in Medicare funding between 2026 and 2034.

Medicare Part D Changes (Prescription Drug Coverage)
The OBBBA did not undo the upcoming $2,000 annual out-of-pocket cap for Part D, which is set to begin in 2025. This cap is a major win for beneficiaries, especially those with chronic conditions requiring expensive medications.

New Medicare Physician Fee Schedule
The OBBBA authorizes a temporary 2.5% increase to the payment rates under the Medicare Physician Fee Schedule. Unfortunately, this increase is only offered in 2026.

Though these provisions will certainly affect Medicare coverage and access, the changes to Medicaid coverage may have an even greater impact on Medicare recipients and on the hospitals that serve these populations.

How do Medicaid cuts affect Medicare?

But wait… why are we asking this question? How are Medicaid cuts relevant to Medicare coverage?

There is significant interplay between Medicaid and Medicare. Many seniors, particularly those in rural areas and those who have low incomes, are “dual eligibles,” meaning that they’re enrolled in both Medicare and Medicaid. Now that the OBBBA slashed Medicaid funding, these individuals may have to rely more heavily on Medicare.

This is a particularly challenging time to put additional pressure on Medicare, and that’s because the program is already strained by the nation’s aging population. In the 20-year period from 2004 to 2024, the share of Americans ages 65+ (i.e., those eligible for Medicare) rose from 12.4% to 18%.¹ With Medicaid funding slashed under the OBBBA, it’s unclear whether the healthcare system will have the staffing, infrastructure, or finances to care for these patients.

How will the healthcare cuts in the OBBBA affect rural populations?

By 2034, an estimated 16 million people will lose health coverage due to changes in the OBBBA.²

Many (if not most) of these individuals will be from rural communities.

People who live in rural communities are more likely to rely on federally- and state-funded healthcare programs. In fact, about 51% of people living in rural areas depend on needs-based coverage like Medicare, Medicaid, or both, compared to just 43% in urban areas.³