Yes. Total number of visas are not increased but people with US Masters degree will have a higher chance of winning the lottery. I am not a lawyer but based on my reading of the law USCIS is likely going to lose in court over this. Here is the relevant text of the law[1]:

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(5) The numerical limitations contained in paragraph (1)(A) shall not apply to any nonimmigrant alien … who … (C) has earned a master’s or higher degree from a United States institution of higher education (as defined in section 1001(a) of title 20), until the number of aliens who are exempted from such numerical limitation during such year exceeds 20,000. (Emphasis added)
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Based on the literal interpretation of law I think it is absolutely clear that the law clearly wants Students not to be counted against the cap until the 20,000 Masters cap is filled. I do not see any way to implement current USCIS proposal without violating this clause. It appears to me that DHS is unable to afford any competent lawyers these days and constantly proposing things that are illegal and not properly thought through.

Ignoring the legality of this move, this move does not benefit US society in any way. Implication that students with US masters degree are high skilled is pretty lame because majority of these students are from fly by night universities that do not even need GRE for admission. Most students after they are done with their masters work on OPT for around two years and seek sponsors for H1B during that time. Many of them simply approach body shoppers and consultancies which operate the low value spectrum of tech and will hire anyone. Also these are the companies at the forefront of most fraudulent activities.

Based on some of the unverified insider information, USCIS director Cissna has had a plan for a four pronged assault on H1B.

1. Simply refuse to renew H1B beyond 6 years. This impacts mostly Indians. He failed to implement this policy after the memo leaked to press.

2. Slow down entire H1B process to the extent most employers lose interest. He has successfully done this. My wife's H1B was filed in April 2018 and was approved in January 2019. No matter how kickass coder she is no employer will ever want to get into that kind of hiring process.

3. Create a system where you simply waste H1B visas each year. One way is to increase the rejection rates for new visas. If out of 65K visas say 10K visas are rejected these are never filled. Second approach which he wanted to implement this year but failed is to have this concept of "pre-registration" which everyone including immigration lawyers applauded. This is a sinister move. Under this move any company can file a lottery even without hiring an employee. After winning the lottery the company may simply refuse to proceed and that visa is wasted. Since there is no serious fee involved here any company who does not even have a hiring plan can enter the lottery and win it. This means a large number of H1B visas will not be claimed at all.

4. Rescind the H4EAD program to hurt families on H1B. Again affects only Indian citizens on H1B. I am told USCIS is unable to come up with good reasons to rescind this program and hence it is delayed for more than 2 years now.

H1B program is in a mess and current USCIS administration is acting in bad faith and making it worse, encouraging fraud and misuse.

[1] https://www.cato.org/blog/dhs-proposes-illegal-h-1b-reforms-...