President Donald Trump signed the “One Big Beautiful Bill Act” (H.R. 1) into law on July 4. The $3.4 trillion tax and spending package long sought by the Trump Administration has major implications for tax and healthcare policies, among other things.
The U.S. Senate passed the bill on July 1 by a vote of 51 to 50, with Vice President J.D. Vance casting the deciding vote after Republican Senators Susan Collins (ME), Rand Paul (KY), and Thom Tillis (NC) joined all Democrats in opposition. The U.S. House of Representatives subsequently approved the Senate-modified version on July 3 by a vote of 218 to 214.
When the House passed its initial version of the bill on May 22, the AAO-HNS sent a letter to Senate leaders urging improvements to three critical provisions: Medicare physician payments, pass-through entity tax treatment for small physician practices, and graduate student loans. The Academy successfully advocated for several improvements in the nearly 900-page bill prior to its enactment.
Key Provisions of the New Law:
Medicare Physician Payments
- Provides a one-year 2.5% increase in Medicare physician payments in 2026
On January 1, 2025, Medicare physician payment was cut by 2.8%. The Academy has urged Congress multiple times to mitigate this cut and enact long-term reform to bring stability to the system. Unfortunately, Congress has not acted, and the 2.8% cut appears cemented for 2025.
This provision in H.R. 1 temporarily increases Medicare payments by 2.5% in 2026. The initial House-passed version of H.R. 1 included a statutory inflationary update for Medicare physician payments. This would have been pivotal and the first time that physician payments were indexed to inflation. While this provision did not make it into the final bill, we are encouraged that Congress is beginning to understand the importance of this issue.
The Academy will continue to work with Congress to ensure physicians are adequately reimbursed for their services and to preserve seniors’ access to care.
Medicaid Eligibility and Financing
- Cuts $1 trillion from the Medicaid program over the next decade
- According to the Congressional Budget Office (CBO), these cuts may lead to over 11 million individuals losing coverage
- States must now verify Medicaid eligibility twice annually and implement systems to confirm employment or exemption status
- Imposes an 80-hour monthly work requirement for “able-bodied” Medicaid recipients unless they meet certain exemptions (e.g., student status, caregiving, or disability)
- Establishes a $50 billion rural health fund to help mitigate the impact on providers and facilities serving high-Medicaid populations
- Gradually imposes a 3.5% cap on provider taxes in states that expanded Medicaid
The CBO produces independent, nonpartisan analysis of the economic and budgetary effects of legislation enacted by Congress. The number of individuals losing Medicaid coverage will vary across states, depending on a number of different factors. States are awaiting additional guidance from federal agencies on several provisions and are likely to vary in how they will implement the provisions of the law.
States will need to consider the potential impact of coverage losses and new restrictions on Medicaid payments to healthcare providers in their states, particularly those that treat a large share of Medicaid beneficiaries. An analysis by the Robert Wood Johnson Foundation estimates a $204 billion increase in uncompensated care over 10 years, including $63 billion for hospitals and $24 billion for physicians.
SALT Deduction and Pass-Through Entity Taxes
- Temporarily raises the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 through 2030—the enhanced deduction phases out for individuals with income above $500,000
- Preserves current treatment of Pass-Through Entity Taxes (PTET), avoiding the sweeping limitations initially proposed in the House version that the Academy strongly opposed
The Academy is committed to preserving the viability of independent, private physician practice. The initial version of H.R.1 completely eliminated the ability of physician practices structured as pass-through entities from deducting state and local taxes from their federal returns. The Academy strongly urged Congress to remove this provision in its letter and in conversations with lawmakers—and they listened. This is a positive outcome for small physician practices that rely on this deduction.
Graduate Student Loan Reform
- Eliminates the Grad PLUS loan program, which previously allowed graduate and professional students to borrow up to the full cost of attendance
- Retains the Parent PLUS loan program but caps lifetime borrowing at $65,000 per child (previously uncapped)
- Caps new borrowing for professional degree students at $50,000 annually, with a $200,000 lifetime limit, effective July 1, 2026 (The House originally proposed a lower $150,000 cap, which AAO-HNS opposed)
- Students borrowing under the old system may continue to do so through program completion
- Replaces existing income-driven repayment plans with two new options:
- A standard repayment plan of 10–25 years, based on original balance
- A new “Repayment Assistance Plan” (RAP), which calculates monthly payments at 1%–10% of Adjusted Gross Income (AGI), with loan forgiveness after 30 years
The Academy’s letter to Senate leadership expressed serious concern about restricting federal student loans for medical education, opposing the caps on loans for medical education and the elimination of the Grad PLUS Program. This will present a significant financial barrier to low-income individuals who want to go to medical school. Given the growing physician workforce shortage, this will only exacerbate the problem.
An initial version of H.R. 1 also would have made physicians ineligible for the Public Service Loan Forgiveness Program. The Academy strongly opposed that provision, and the Senate removed it from the final bill.
Looking Ahead
The enactment of H.R. 1 represents a significant shift in federal tax and healthcare policy, with far-reaching effects on physicians, hospitals, and patients. The Academy will closely monitor implementation of the law and advocate for member interests, as federal agencies develop corresponding regulations.
We remain committed to pursuing solutions for outstanding issues not addressed in the final law, including:
- A long-term Medicare physician payment fix
- Reforms to burdensome prior authorization processes
- Bolstering the physician workforce
- Strengthening patient access to high-quality, physician-led care
If you have questions about H.R. 1 or the Academy’s advocacy efforts, please reach out to us at [email protected].
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