What a default could mean for Medicaid and other federal benefits

With the White House and White House leadership less than two weeks away from expiring on the country’s debt default, anxiety is growing about the potential impact on federal programs like Medicaid and the beneficiaries who depend on it.

Among the sticking points is speaker Kevin McCarthy’s (R-Calif.) push for work requirements to be added to federal assistance programs such as Medicaid and the Supplemental Nutrition Assistance Program.

McCarthy told reporters before a meeting with President Biden on Tuesday that adding the job requirements was a “red line” for him, while House Minority Leader Hakeem Jeffries (DN.Y.) called the proposal a “not started”.

Health policy experts say a default would spell disaster for federal programs, though some think the government could avoid impacting beneficiaries for some time beyond the June 1 “X date” for the hike. of the debt ceiling.

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If a default occurs, the federal government will likely prioritize paying bondholders to avoid a technical default. It’s unclear where Medicare, Medicaid and Social Security would fit on the priority list: Policy pundits aren’t even sure the Treasury Department has the ability to prioritize payments in any specific order.

“Social Security and health care are the largest sources of federal spending and, in most scenarios, will suffer,” said Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation. “Medicare is the financial backbone of our healthcare system, so the consequences for hospitals and healthcare professionals will be profound.”

The United States has never in its history defaulted on its debt, and there is no record of late payments to federal health care programs.

“Even nearing default could hurt the economy, as we saw in 2011,” a spokesman for the Centers for Medicare & Medicaid Services (CMS) told The Hill.

The debt ceiling standoff in 2011 resulted in the US hitting its debt ceiling, stock prices plummeting, and the country’s credit rating was downgraded for the first time in history. There are fears that this fight could be even worse.

“While the precise impact on CMS’s programs depends on many uncertain factors, it is clear that if the federal government is prevented from delivering on its promises, there would be significant consequences for the Medicaid, Medicare and Affordable Care Act Marketplaces,” CMS added.

In traditional Medicare, CMS reimburses providers directly for services. In the absence of available funding, providers should prepare for reimbursements to stop coming, but there may be some buffer before that happens.

The slow pace at which Medicare bills are being paid could help providers in the wake of a default, according to Joseph Antos, a senior fellow at the American Enterprise Institute.

“For at least a month, maybe two months, hospitals and doctors’ offices and other providers would continue to receive payments from the Medicare program, but for services they potentially provided months ago,” Antos said.

And a 1996 amendment to the Social Security Act could provide temporary relief if the default persists for a few months. The law states that federal trust funds cannot be cashed for any purpose except “paying for benefits,” such as Social Security and Medicare. The Social Security Administration’s most recent report said the trust has $2.83 trillion in reserves.

“Theoretically, the Treasury Department could release very large amounts of money, which would then have to be used to pay federal bills,” Antos said. “This includes Medicare payments to medical providers. It also includes Social Security but also includes payments for defense contracts and custodian’s [Department of Health and Human Services] building. Basically all of those would get paid, pretty much in the order they arrive.

Antos estimates that if a default were to occur, it would be only a matter of weeks before lawmakers were intimidated into reaching a deal, and he believes federal health care programs could survive for a few weeks.

However, others believe the urgency of the situation is not fully apparent to those on Capitol Hill.

“The situation this year looks more serious in that, you know, one side of the discussion — namely House Republicans — seem to be less concerned about the prospect of default than they should be,” said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities and a former Congressional Budget Office staffer.

“McCarthy said he doesn’t want the government to default, that he recognizes the serious negative impacts it would have, but it’s unclear whether all Republican caucuses feel the same way.”

McCarthy said House Republicans have already passed their debt limit package and it was up to the Biden administration to respond. He emerged from Tuesday’s talks saying the “structure” of the talks has improved.

But he added: “I am no longer optimistic. Only 15 days left and you’re looking to raise your debt ceiling.