What the 2026 budget proposal for HHS means for national health programs

Terry Gerton We’re going to do kind of a deep dive into the 2026 Health and Human Services budget proposal. As you’ve had a chance to look at it, what’s your overall impression? How does it reflect the Trump administration’s priorities?

Jeffrey Davis It really does reflect an idea of both the restructuring of HHS, needing to restructure it and really eliminate redundancies, create efficiencies in HHS and also reduce what they believe to be unnecessary programs. Now, the recent documents we received a few weeks ago really provide more depth and more information than the skinny budget we initially received in May. The overlying top line numbers are the same, but we got a lot more information on the proposed restructuring, what the new administration for healthy America is going to look like. What are the new offices under the new Office of the Secretary going to look like? Overall, there is still a significant reduction, $95 billion in budget authority for fiscal year 2026, which is a $32 billion reduction, so around 25% reduction. We really got to see in these new budget documents more detail in terms of how they would go about it, what programs they want to eliminate, how they will get those efficiencies. Now, one of the biggest kind of things that I was looking at, what are these new restructurings within the HHS, these new agencies? The Administration for Healthy America, for example; it can be the biggest part of that restructuring. Now, they went through it and along with all the materials released was about a 400-page congressional justification, a really, really big document that includes all the programs in current parts of HHS that would now be shifted to this new administration. Overall, they have a budget of around $14 billion in budget authority and $19 billion overall for the Administration for Healthy America. And they went through program by program. And in their estimation, the current programs, what their funding levels are is around $20 billion. So that’s around a $6 billion hit in terms of the budget authority. So really looking at what I try to do, Terry, was look at what is that $6 million? What cuts? What programs do they want to eliminate, including the National Diabetes Prevention Program and other programs such as those that they would completely eliminate under the proposal. And now I want to stress the word proposal because they do say in the mission for healthy America, for example, that the congressional justification, that they want to work with Congress to create this new agency. And by saying the words “work with congress,” we assume that this is just a proposal at this time that they have not moved forward yet, and they do need some sort of help from Congress to achieve their goals.

Terry Gerton So as you’re looking at that, are you hearing anything from Congress that indicates that they’re going to be supportive of this proposal?

Jeffrey Davis I think in recent years, Congress has not accepted the president’s budget proposals in any administration. And I think this year may be no different than that. We shall see. I think there has been some concerns by the overall level of reductions. Besides Congress there are also legal and operational constraints to what it just can do and how quickly can they can move to achieve their goals regardless of what Congress actions Congress does. But it should clearly want Congress’ help, and Congress in recent years has not accepted the president’s budget. And it does seem like, at least, you know, obviously they don’t have 60 votes in the Senate to get a budget across the door and the appropriations across the door, so it could be a challenge, particularly in the Senate for them to achieve that all those goals that they articulate in the budget documents.

Terry Gerton It’s a great perspective and, and oftentimes we see budgets that propose savings from consolidation when it turns out to be much more expensive to execute those consolidations in, in real life.

Jeffrey Davis Yes. And for example, everything that’s happening right now in terms of the reducing staff, reducing contracts – these take time to implement. In fact, the staff reductions at this point in time, most of the staff that have been let go at HHS are still on the payroll. So even though they have reduced the staff footprint at HHS already, those staff are still being reimbursed. So those cost savings have not yet been achieved yet. These things take time, Terry, and I think one of the biggest things about this budget proposal is that again, it’s a proposal and it really isn’t a wish list for what it just wants to achieve. And whether they get any parts of that wish is still to be determined, but it takes time for those.

Terry Gerton I’m speaking with Jeff Davis. He’s a director at McDermot Plus. Let’s take a look at a couple of the other big changes in the budget. One of them is significant cuts to agencies like the National Institutes of Health and the Centers for Disease Control and Prevention. What are you seeing there and what will the impact be of the reduction to the research budgets of these kinds of organizations?

Jeffrey Davis For NIH, they are proposing a significant shift in terms of research funding, reduction in funding. They are reducing, proposing to reduce, as you said, proposing as the big word, from a $44 billion budget to $27 billion, which is around a $17 billion reduction, near 35% to 40%. So it’s a significant proposed reduction. They’re also proposing a significant restructuring of the NIH institutes down from its current structure, down to eight institutes. So they really want to streamline and create efficiencies within NIH. Whether or not Congress will approve those efficiencies is another question. Another big policy in the NIH budget is the assumption that the proposal that they put forward, the policy they put forth was now stuck in in the legal system, to cap indirect cost of 15%, will go through. And that’s significant because, again, that also affects overall research budget. And they assume in the budget that that policy will go forward. But again, the other considerations, like the legal system operational constraints and others, that may limit their ability to effectuate that policies.

Terry Gerton I have another question that’s maybe a little bit in the weeds, a little nerdy, but the administration has really taken a big whack at CMS, the Centers for Medicare and Medicaid, and they’re proposing to shift the 340-B drug pricing program to CMS, which has already been reduced by, I think, 30%. What do you see in terms of that proposal? Is it feasible? What’s going to happen to CMS? How is that all going to come together?

Jeffrey Davis The actual budget for the 340B program is around $12 million, and they’re proposing to keep that budget for that 340B program flat. However, you have to keep it in the context of the overall CMS program management budget, which has been around $4.1 billion for the last couple of years, and they are proposing a $673 million cut to about $3.464 billion. So a $673 million cut to that overall budget. Now, while a 340B program budget may be the same, the CMS budget is going to be constrained in a way if Congress were to approve that lower funding level. And so I think in terms of the staff, in terms the resources that CMS has at its hold to carry out all of its responsibilities, if you add the 340B program, this is another one of the responsibilities that they have to account for. They run the Medicare program, the Medicaid program, the CHIP program, all the ACA exchange programs. They’re responsible for lives of majority of people in this country. So yeah, so CMS may have some difficulty adopting the new responsibility of the 340B program, but they do describe in their congressional justification in their budget documents, their ability to find these savings in terms of reduced. Contract costs, efficiencies, reducing unnecessary fraud, waste, and abuse, that they will be able to find money in their budget to do everything that they all their responsibilities and carry out all their responsibilities. So they do say they can’t handle the workload, whether or not Congress accepts the reduced funding level, and whether or the 340B program will eventually move into CMS, that has not happened yet, but that’s their plan at this point.

Terry Gerton So this is a very complicated budget submission, lots of moving parts and pieces. We’ve been very careful. You’ve certainly been very carefully to say this is proposal. Much will depend on what Congress chooses to do. But let’s just say that Congress accepts the entire proposal. What does this mean for the future of our national health plans and the HHS organization as a whole?

Jeffrey Davis Let’s say that Congress were to accept the budget as a whole and again, that’s a big if, but if they did, they would have started actually trying to effectuate it and that could take some time to effectuate and make sure that all the changes articulated in the HHS restructuring plan are done accordingly, making sure it takes time as we’ve seen for them to make changes to staffing, to the level of staff, to shift staff around. For example, this new Administration for Healthy America. Where are the staff going to work? Everyone has to go into the office. So what buildings will they work at? These operational questions would be the next steps they would take. If Congress were to accept the proposals and then they would get those smaller budgets and start figuring out, okay, how am I going to spend this money in the way? In accordance with what the budget plan is, the actual spending sometimes differs a little bit from proposed spending in terms of. Sometimes there are contract delays and not everything goes as smoothly as anticipated. There could also be changes in priorities or whatever happens within the next year, the big other priorities could come into the picture as well that you would have to deal with. So all those questions come into play when considering if Congress is to accept the president’s budget as it is, what the next steps would be.