May 5, 2023 - Health

The health care dangers of a debt default

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Illustration: Annelise Capossela/Axios

If the federal government breaches the debt ceiling, Medicare wouldn't be able to pay providers — and states wouldn't get their federal Medicaid funding, experts tell Axios.

Why it matters: Losing out on those payments, even for a short time, could be disastrous for providers’ bottom lines — and the effects could trickle down to patients.

  • An extended default could have broad consequences for Americans' health care, potentially reaching not just Medicare and Medicaid, but the Affordable Care Act as well — and making providers more reluctant to treat Medicare and Medicaid patients.

What they're saying: "There is no separating the failure to raise the debt limit from health system collapse," said Sara Rosenbaum, a health law and policy professor at George Washington University.

  • "Get your health care now. Don't wait until June 1," Rosenbaum said. "My message to the world is, don't wait on that orthopedic surgery."
  • Because the U.S. hasn't defaulted on its debt before, it's difficult to predict specific impacts, said Bill Hoagland, senior vice president at the Bipartisan Policy Center and a former Senate Budget Committee staff director.
  • "But every indication [is] this would be extremely disruptive," he added.
  • People who get their health coverage through the Affordable Care Act would feel the effects too, Hoagland said — because the government wouldn't be able to pay subsidies for Marketplace insurance premiums if it defaults.

The big picture: Public insurance — including Medicare, Medicaid, CHIP, and Veterans Administration and Department of Defense programs — paid for 42.5% of national health expenditures in 2021, according to the Kaiser Family Foundation.

What to watch, if President Biden and House Speaker Kevin McCarthy don't get it together pretty soon:

Medicare: In the event of a debt limit breach, the money withdrawn from payroll taxes for Medicare could sustain the program for a bit, said Joseph Antos, a health care scholar at the American Enterprise Institute.

  • There's also the separate trust fund for Medicare Part A that could keep that part of the program afloat temporarily.
  • Don't get too relieved, though. "With Medicare being so important to the health care business, you can't really go too long with Medicare being late paying the bills" — because it would make it hard for hospitals and doctor's offices to meet their bottom lines, Antos said.

Medicaid: One big uncertainty is how states would reimburse providers without getting their federal Medicaid matching funds, Hoagland said.

  • Managed care, which provides coverage to most Medicaid beneficiaries in the country, won't provide a backstop, either. Plans get paid from the government on a month-to-month basis, Rosenbaum noted.

Providers: The big risk is that a debt ceiling breach could make providers reconsider treating Medicare or Medicaid patients at all.

  • That could happen if any delay in paying Medicare providers went on too long, Antos said.
  • Many providers are already frustrated with Medicare and Medicaid for what they say are administrative burdens and low reimbursement levels, Hoagland added.
  • "It's tough enough for some of these providers out there to even take Medicare or Medicaid patients to begin with," he said. "This would probably be just another nail in the coffin of those providers."

Yes, but: The experts we spoke with said that if the debt limit were breached, the Biden administration would have some discretion about what to fund and what not to fund.

  • "They'll pursue the Washington Monument strategy, which is, you know, we're going to shut down the most highly visible, highly valued stuff first, and we're going to tell you that's what we're going to do and piss people off," said Michael Cannon, health policy studies director at the Cato Institute.
  • "If the Biden administration really wants to put the screws to Republicans, they can tell hospitals 'Sorry, we're not able to make this payment because of the debt limit problem,'" Cannon said.

Reality check: Despite both sides standing firm on their demands for raising the debt limit, experts seemed optimistic that they would take action before reaching the deadline.

  • "I've been through a number of these," Hoagland said. "I still will take the speaker's word that he does not want there to be a default."

A version of this story was published first on Axios Pro. Get news like this by subscribing. Use code POLICY100 which gives you $100 off.

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