By Joanne Bump
Federal Safety Net Cuts — The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025. This law will make the largest cuts in history to Medicaid. Medicaid provides health insurance to one in five Americans, usually for low-income and disabled persons. In addition, significant cuts were made to the Supplemental Nutrition Assistance Program (SNAP) which is the electronic version of the food stamp program. As federal funds to Medicaid are cut, states usually cut optional benefits like Home and Community based Services (HCBS) first. The HCBS allows seniors to stay in their own home. The “In Michigan, Medicaid covers” table shows how significant Medicaid coverage is to Michigan residents. Cutting Medicaid hurts everyone, not just Medicaid patients. Hospitals losing Medicaid financing end services or close altogether. There are fewer emergency services, longer wait times, and less health care for all of us regardless of our insurance. In addition, OBBBA removes health care and food from lawfully present immigrants, who have paid their Social Security payroll tax, while working in the U.S. for years.
In addition, OBBBA threatens Medicare with cuts estimated at $490 billion from 2027 to 2034. It places older adults in nursing homes at risk. OBBBA’s deep cut to Medicaid and Medicare will lead to benefit losses, increased paperwork rules, and closures to rural hospitals that will harm Americans, particularly the disabled, according to The Center for American Progress and The Arc.
The Congressional Budget Office (CBO), provides lawmakers with objective information about the budgetary impact of proposed bills. The CBO estimates that 16 million more individuals will lose health insurance by 2034 due to OBBBA. See “Table 1.”
FY 2026 Michigan Impact — According to the Citizens Research Council (CRC), OBBBA implements more favorable tax treatment of corporate income taxes. The result is a significant and speedy revenue decline estimated at $677 million in Fiscal Year (FY) 2026. Also, OBBBA created a $450 million hole in Medicaid funding in the next fiscal year for Michigan. The OBBBA changes will compose about 40 percent of the projected General Fund revenue increase by FY 2032.
Long Run Challenges — OBBBA weakens Michigan’s financial capacity to fill in any funding gaps created by OBBBA, increasing the share that Michigan pays for Medicaid and SNAP by over $1 billion by FY 2032. The federal administration is pushing costs and responsibilities down to the states. These costs will not be fully effective until after the 2026 mid-term elections. The OBBBA changes will require the Michigan general fund to increase 40 percent by FY 2032. Beyond the financial impact, these cuts will cost more than 51,000 people their lives, every year, due to premature death as they lose access to health care, according to estimates by The Leonard Davis Institute of Health Economics (Penn LDI).
Trigger Law — OBBBA threatens the Social Security Trust Fund and Medicare, putting an already weak long-term care system at jeopardy. OBBBA will trigger an estimated $490 billion in cuts to Medicare from 2027 to 2034. Sequestration, or the cancellation of budgetary resources, as outlined by the Statutory PayAsYouGo Act of 2010 (S-PAYGO), would occur if an enacted bill raised deficits by $2.3 trillion over ten years. The federal deficit created by OBBBA was increased by about $4 trillion over ten years so it could trigger a sequestration. While the PAYGO rules can be waived, this may be less likely if Medicare reductions are slated to offset a large deficit to pay for tax cuts for the wealthy.
Federal Income Tax Deduction for Seniors — OBBBA permanently eliminated the personal exemption deduction for most taxpayers. However, the good news is it included a deduction specifically for seniors. Although touted by the administration as “no tax on social security,” social security is still included in income for many. The senior deduction was intended to offset the income subject to the social security tax that is included in gross income without having to calculate the amount of social security that is taxable. The calculation of the amount included has not changed. Instead, a new $6,000 deduction for taxpayers aged 65 or older has been created for tax years 2025 – 2028. At high levels of income, the deduction is subject to reduction and may be as little as zero. This reduction starts at $75,000 of income for singles and heads of household and at $150,000 for those married, filing jointly. In addition, both spouses on a joint return could get the deduction if they are 65 or older, but there is no deduction on a married filing separately return.
Older undocumented taxpayers may have an individual taxpayer Identification number (ITIN) in order to pay income taxes, but they are not eligible for the senior deduction. An ITIN is a number the Internal Revenue Service issues to an individual who needs to report income, but is ineligible to obtain a Social Security number.
Significant 401(k) Rule Changes — The administration signed an executive order (EO) that could make it easier for 401(k)s and other employer retirement plan alternatives for investing their savings. The EO’s purpose is to “relieve the regulatory burdens and litigation risk,” giving employers the permission to use their best judgement in what they provide as investment choices. Plan administrations have traditionally stayed away from offering private market investments because of their fiduciary duty to give prudent and affordably priced investments to participants. Private equity investments have been riskier, higher priced, less transparent, and less liquid than publicly traded stocks. These 401(k) changes are not likely to happen immediately as fiduciaries will need new rules, according to TD Cowen Washington Research.
(Editor’s Note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 8/10/25. Joanne can be contacted by e-mail at joannebump@gmail.com.)