This article examines the effects of the Balanced Budget Act of 1997 on Medicare home healthcare utilization by older adults in different income groups. Data are drawn from a sample of functionally limited Medicare-eligible elderly respondents (N=2,749) from the Medical Expenditures Panel Survey. Results from multivariate analyses revealed that, although policies succeeded in curbing home health expenditures for all income groups, the reduction was heavily concentrated among the poorest respondents. Between 1997 and 1998, Medicare home health expenditures decreased by 1,404 dollars in lower income respondents, four times as much as the reduction in expenditures in middle-income respondents (352 dollars) and more than twice the reduction in high-income respondents (567 dollars). These findings raise important questions about whether the decrease in expenditures will result in increased incidence of adverse effects or less satisfaction with care of vulnerable individuals.