MEDICARE
According to the nonpartisan CBO, the following provisions in the OBBBA are estimated to temporarily increase provider payments under Medicare, exclude certain non-citizens from Medicare eligibility, shrink the list of drugs that Medicare can negotiate prices on, and cause $490 billion in deficit-triggered cuts to Medicare over the next 10 years. This guide lists the provisions in order of effective date and discusses how Minnesota will be uniquely impacted by each.
Medicare is a federal program that provides health insurance for people aged 65 or older and for people younger than 65 with disabilities, permanent kidney failure, or ALS.
In 2025, 1.14 million Minnesotans were covered by Medicare (i.e., 19.7% of the state population). Approximately 56% of Minnesotans receive benefits through private insurers (i.e., “Medicare Advantage), and 44% of Minnesotans are on “traditional” Medicare.
Medicare also plays a central role in determining physician payments, not only for services provided to Medicare patients, but also to other insured patients. Nearly all sources of private and public health insurance base provider reimbursement on current Medicare payment rates and methodologies.
Effective Date: January 1, 2026
Estimated Federal Costs: $1.9 billion over 10 years
Estimated Number of Americans to Lose Insurance: No clear effect.
Background
Medicare payment rates to physicians under the Medicare Physician Fee Schedule (MPFS) are determined by a conversion factor (i.e., a dollar multiplier) that is updated by Congress on an annual basis, based on budgetary requirements, statutory provisions, and other factors. Despite organized medicine’s efforts to implement a permanent annual adjustment to the conversion factor based on practice cost inflation, Congress continues to punt on enacting a long-term solution.
The original House version of the OBBBA included a permanent, automatic adjustment to the conversion factor based on practice cost inflation, as measured by the Medicare Economic Index (MEI). However, the final version of the OBBBA struck this provision and instead instituted a temporary 2.5% increase to the conversion factor for services provided in calendar year 2026.
Impact in Minnesota
Approximately 1.14 million Minnesotans are on Medicare (i.e., 19.7% of the state population). Virtually all insured Minnesotans, however, are covered by sources of insurance that base provider reimbursement on Medicare rates and methodologies. The importance of Medicare rates is thus fundamental for the financial sustainability of medical practice in Minnesota and in the United States writ large.
Until Congress adopts inflation-based adjustments to Medicare physician payments, real payments to providers will continue to decrease. Adjusted for inflation, Medicare payments to physicians have decreased 29% from 2001 to 2024.
Effective Date: January 4, 2027
Estimated Federal Savings: $5 billion over 10 years
Estimated Number of Americans to Lose Insurance: 300,000 to 500,000 over 10 years.
Background
Historically, all US citizens, permanent residents, and lawfully permanent residents aged 65 and older have been eligible for premium-free Medicare Part A (i.e., Medicare for hospital, skilled nursing facility, hospice, and home care) if they or their spouses worked in a job for at least 10 years and paid Medicare payroll taxes during that time.
The OBBBA restricts Medicare eligibility to US citizens, green card holders, and Cuban-Haitian entrants who meet the 10-year payroll tax requirement. Anyone excluded from this list who is currently receiving benefits will lose coverage on January 4, 2027.
Impact in Minnesota
While state-level estimates are not yet available, some Minnesotans on Medicare are expected to lose coverage under this OBBBA provision. This population will have to return to work for employer-sponsored coverage, restrict their incomes to qualify for MinnesotaCare or Medical Assistance, or purchase plans on the individual market (which may be cost-prohibitive given this population’s age).
Effective Date: January 1, 2028
Estimated Federal Costs: $8.8 billion over 10 years
Estimated Number of Americans to Lose Insurance: No clear effect (but may affect drug prices)
Background
The 2022 Inflation Reduction Act (IRA) included a provision that directed the federal government to negotiate drug prices for certain drugs under Medicare (i.e., high-cost drugs without generic or biosimilar competition that have been on the market for seven to 11 years past the FDA approval or licensure date). The IRA excluded orphan drugs, or drugs designed for only one rare disease, from negotiations.
The OBBBA expands the definition of excluded orphan drugs to include drugs designed for one or more rare diseases.
Impact in Minnesota
Minnesotans on Medicare who live with rare diseases or conditions might pay more for their prescription drugs than they would have paid absent this OBBBA provision.
Notably, while the Congressional Budget Office (CBO) originally estimated this provision to cost the federal government $4.8 billion over 10 years, the CBO released an updated cost estimate of $8.8 billion over 10 years in October 2025. The CBO shared that this adjustment accounts for several high-cost drugs that were not included in the initial cost estimate, including costly cancer drugs like Keytruda, Opdivo, and Darzalex.
Effective Date: January 1, 2028
Estimated Cuts to Medicare: $490 billion over the 2027 to 2034 period (No longer expected)
Background
In 2010, Congress passed the Statutory Pay-As-You-Go Act (S-PAYGO). Under S-PAYGO, increases in the national deficit are offset by automatic, across-the-board cuts in federal spending known as sequestration. S-PAYGO sequestrations to Medicare are limited to 4% cuts per year.
The OBBBA was estimated to increase the national deficit by $3.4 trillion, triggering S-PAYGO sequestrations of Medicare spending of $45 billion to $75 billion per year from 2027 to 2034. However, in November 2025, Congress successfully voted to “reset” the S-PAYGO scorecard so that increases in the national debt attributable to the OBBBA would not trigger Medicare sequestrations.
Impact in Minnesota
Due to Congressional action in November 2025, this provision – and its estimated effects – are nullified and are not expected to directly impact Minnesota.