By John Reichard, CQ HealthBeat Editor
October 11, 2013 -- A debt ceiling deal may be in the works but it isn't done yet, and any agreement may not last long. What would happen to Medicare and Medicaid if lawmakers don't increase the nation's borrowing power?
Judging from a Senate Finance Committee hearing this week, the answer is likely a big interruption in cash flow and sharply lower rates of payment.
The federal government "has numerous large payments that are due shortly after Oct. 17, when we will have exhausted our borrowing authority and will only have cash on hand to meet our obligations," Treasury Secretary Jacob J. Lew recently testified. In the last two weeks of October, "we have large payments to Medicare providers, Social Security beneficiaries, and veterans, as well as salaries for active duty members of the military." These could be delayed, he said.
"Doctors receiving reimbursements under Medicare would likely continue to provide services on a timely basis, but they would be operating with significant uncertainty about when they would be paid by the government for their services," he said.
"For millions of low-income Americans who rely on Medicaid for their health care, the federal government's payments to states for the federal contribution would likely also be impacted. These providers still have to pay their doctors, nurses, and staff. But absent timely federal payments, many could face real liquidity challenges."
Medicare beneficiaries could be hard hit in other ways, through delayed payments of Social Security checks and shrinking 401(k)s leaving them less able to pay for basic needs.
"For those waiting on benefits who need those funds to in order to refill their refrigerator, if that money doesn't flow, they won't go to that grocery store to shop."
Lew noted that during the 2008 financial crisis retirements assets shrank. "Now if you create a crisis that causes assets to shrink in value, for retirees, they don't have a lot of time to catch up."
Lew did not dispute an assessment by the panel's chairman Sen. Max Baucus, D-Mont., that payments by Medicare and other federal programs could fall to 70 to 80 percent of their current rates.
Lew rejected the idea advanced by some GOP lawmakers that the impact of failing to raise the debt ceiling could be reduced by paying some creditors and delaying payments to others.
"How can the United States choose whether to send Social Security checks to seniors or pay benefits to our veterans? How can the United States choose whether to provide children with food assistance or meet our obligations to Medicare providers?" he asked. "Prioritization is just default by another name," he declared.
Republicans didn't dispute Lew's assessment of the impact of failing to lift the debt ceiling. But they bridled at his description of the current crisis as "manufactured," saying Democrats have repeatedly failed to curb spending and that entitlement spending is on an unsustainable path.
"I think this is a manufactured crisis because we didn't work on it yesterday," said Sen. Michael B. Enzi, R-Wyo.
