Default scenarios include questions about fate of Medicare, Medicaid, government workers

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Aug 1 2011

With the debt-ceiling fight unlikely to be resolved this weekend, news outlets are covering the possible fallout for the health care system.

Politico: "Just days ahead of the Aug. 2 debt ceiling deadline and as partisan rankling continued on Capitol Hill, President Barack Obama urged Congress to show him a plan that would divert the country from national default by Tuesday. ... The gap between Democrats and Republicans is not wide, he added, pointing out areas where he said there was general agreement, including on spending cuts, and tax and entitlement reform. Without a compromise, the U.S. would lose its ability to pay its bills on time" (Lee, 7/30).

NPR: "If Democrats and Republicans are unable to meet the Tuesday deadline for raising the debt ceiling, and the Treasury starts running short of money, the government will have to start making choices about which bills to pay. ... [Washington state Office of Financial Management Director Marty Brown] especially hopes that list does not include Medicaid, medical care for the poor and disabled. 'It's a gigantic portion of our health care budgets, and that would affect not only our state programs, but it would clearly affect providers and lots of recipients,' Brown says. 'So our first priority would be please — and I think it's the same priority for all states - please, please, please, pay Medicaid'" (Kaste, 7/30).

Kaiser Health News: "Hospitals, nursing homes, doctors and state health programs could survive a brief pinch if the Washington debt ceiling deadlock leads the government to stop paying Medicare and Medicaid bills. But if an impasse were to drag on for more than a few weeks, health care providers could be unable to pay their staffs or even face insolvency, according to health care experts and former government officials. ... There's no precedent for this kind of fiscal crisis, although Medicare providers have experienced short-term delays in the past" (Rau, Weaver and Marcy, 7/29).

CNN Money: "[Some physician groups] have started to warn their members that a possible default means their Medicare paychecks may not get mailed. ... In 2010, the federal government paid out $515.8 billion in total Medicare benefits to health care providers, including doctors, hospitals, nursing facilities, home health care centers and pharmacies. ... The Centers for Medicare & Medicaid Services declined to say whether Medicare payments to health care providers would be affected if a default occurs" (Kavilanz, 7/29).

Bloomberg: "Deciding who gets paid and who doesn't, a process members of Congress have called 'prioritization,' is fraught with politically perilous choices for the administration, forcing it to pick among bondholders, retirees and the military, said Mark Zandi, chief economist at Moody's Analytics. ... "From Aug. 3 until the end of the month, the Treasury would have about $172.4 billion of revenue while owing $306.7 billion, leaving a shortfall of $134.3 billion, according to the report. For example, Social Security benefits for that period cost $49.2 billion, the group estimated. Medicare and Medicaid total $50 billion, defense vendors and active military duty pay cost $34.6 billion and unemployment insurance benefits are $12.8 billion. Federal salaries and benefits total $14.2 billion" (Hopkins and Katz, 7/29).

Wall Street Journal: The U.S. Congress could fail to reach a deal to raise the debt ceiling before Aug. 2, technically throwing the country into default and causing the government to miss payments to bond holders, Social Security recipients, vendors and others. ... Another scenario, of course, is that the debt ceiling isn't raised before Aug. 2, the U.S. is downgraded shortly thereafter—and nothing major happens. A similar event played out in 1995. In 1979, the U.S. briefly defaulted but quickly paid back creditors. In both cases, Medicare, Medicaid and Social Security payments continued to be made and markets weren't much affected (Cheng and Pilon, 7/30).

The Associated Press: "If the government can't pay all its bills come Wednesday, odds are it will pay bondholders. Social Security and Medicare recipients will be high on the must-pay list, too. Likely losers: federal workers in jobs deemed non-essential, private contractors and state and local governments" (Raum, 7/29). The New York Times has a chart which notes that the United States "pays billions of dollars in mandatory expenses every weekday. The government says Aug. 2 is the last day it can pay its bills if the debt limit is not increased. Here are estimates of the amount of revenue the government will receive each day and the payments due during the two weeks after the deadline" (Cox, He, McLean, Russell, Tse and Waananen, 7/29).

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.