Four Changes to Medicare in the One Big Beautiful Bill Act

Medicare provides health care for 68.5 million beneficiaries. The One Big Beautiful Bill, passed by the House and in debate in the Senate, contains several provisions that would impact Medicare, including cuts to some programs.

The cost of the pending legislation would trigger automatic cuts to Medicare and some other programs; fortunately, Social Security is excluded from the reductions. Without congressional intervention, Medicare payments would be reduced by 4%, resulting in a $500 billion cut over eight years, beginning in 2026.

Here’s how Medicare will change in four ways if the bill becomes law as it’s currently written.

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1. Allow contributions to HSAs after enrollment in Medicare Part A

There are some exciting changes to Health Savings Accounts (HSAs) included in the legislation. One of the most significant changes is for individuals enrolled in Medicare Part A who are still employed.

As it stands, if you want to make contributions to an HSA, you have to delay enrolling in both Medicare and Social Security. This is because most individuals who are collecting Social Security benefits when they become eligible for Medicare at age 65 are automatically enrolled in Medicare Part A. You cannot decline Part A while collecting Social Security benefits. To make HSA contributions, you can only be enrolled in a high-deductible health plan (HDHP).

Current Law: Individuals entitled to Medicare Part A are ineligible to contribute to a health savings account (HSA) even if they are still enrolled in a private high-deductible health plan (HDHP).

Proposed change: Under the new law, Medicare Part A-eligible working seniors enrolled in an HDHP can still contribute to an HSA. Existing HSA contribution rules and penalties for non-qualified medical expenses that apply to those under 65 will also apply to this group.

Contribution limits increase for some based on income. Another provision allows bigger contribution limits. Individuals who make less than $75,000 annually can contribute an additional $4,300. In the case of families, they can contribute $8,550 each year to their HSA if they earn less than $150,000. These amounts would be indexed for inflation in succeeding years. The additional amounts are phased out for individuals making $100,000 annually and for families making $200,000 or more.

As HSA accounts can be used to reimburse you for Medicare premiums and co-pays, the opportunity to save more could help cover more of your medical expenses in retirement.

2. Allow more hospitals to register as a "rural emergency hospital"

Financial stress has led to 146 hospitals in rural U.S. counties being closed and 81 being converted to non-acute care (meaning they stopped providing general, short-term, acute inpatient care) between 2005 and 2023. Designation as a Rural Emergency Hospital (REH) by Medicare can be a financial lifeline to keep medical facilities open in sparsely populated areas.

Current Law: Only certain hospitals that were enrolled in Medicare as of December 27, 2020, were eligible to convert to the Rural Emergency Hospital (REH) designation.

Proposed change: The law would establish a “look-back” from January 1, 2014, to December 26, 2020, and allow qualifying rural hospitals open during that time, but that have since closed, to reopen under the REH designation.

3. Use AI to reduce and recover improper payments

The elimination of fraud, waste, and abuse has been a major theme of the second Trump administration. There is a provision in the bill to use AI to reduce and recoup Medicare overpayments.

The CMS recently launched a bid to audit every Medicare Advantage plan and clear the significant backlog by 2026.

Proposed law: A new law allocates $25 million for the Secretary of Health and Human Services to engage AI contractors and data scientists to investigate and recover improper Medicare payments. Also, the Secretary must provide Congress with progress reports on reducing these improper payments.

4. Limit eligibility for Medicare

Admittedly, current law already excludes anyone in the U.S. from unlawfully receiving Medicare benefits. To be eligible to enroll in Medicare as a retiree, you must be 65, have worked for 10 years, and be either a U.S. citizen or have been a permanent resident of the U.S. for at least five consecutive years.

The Big Beautiful Bill explicitly outlines which non-citizens would be eligible for Medicare; the work and age requirements are unchanged.

Proposed change: The law would eliminate Medicare eligibility for illegal immigrants and only allow eligibility for Lawful Permanent Residents, certain Cuban immigrants, and individuals living in the United States through a Compact of Free Association.

The Compacts of Free Association are agreements between the U.S. and three Pacific Island nations: Micronesia, the Marshall Islands and Palau.

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