Debt Default Could Delay Medicare/Medicaid Pay

October 14, 2013

A government default on the United States' financial obligations — the consequence of not raising the debt ceiling by October 17 — would delay Medicare and Medicaid reimbursement to physicians and other healthcare providers, Treasury Secretary Jacob "Jack" Lew told the Senate Finance Committee on October 10.

Default would be the second shoe to drop after the partial government shutdown that commenced on October 1. Physicians have received Medicare and Medicaid payments without any hitches during the shutdown, but that would not be the case in the event of default, Lew warned.

"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," Lew told the Senate committee in his prepared testimony. "For millions of low-income Americans who rely on Medicaid for their healthcare, 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."

Lew had more on his mind than slow pay to physicians, however. He also told the senators that a government default could push the nation into "a financial crisis and recession that could echo the events of 2008 or worse."

As of Monday morning, President Barack Obama and Congressional leaders of both parties were still deadlocked on reaching a legislative solution to reopening the government and raising the debt ceiling. Up until the past few days, the Republican-controlled House has made dismantling the Affordable Care Act a condition of funding the government for the fiscal year that began October 1. Now the GOP bargaining position has shifted by and large to deficit reduction. Congressional Republicans also are using the need to raise the debt ceiling as political leverage. However, House Speaker John Boehner (R-OH) reportedly has vowed to fellow Republicans that he will not allow a default to happen.

Lew's warning about delayed Medicare and Medicaid payments struck a nerve with at least one medical society. Jeff Cain, MD, chairman of the board of the American Academy of Family Physicians, implored Congressional leaders in a letter on October 11 to "take the necessary actions to stabilize the economy and restore the full function of the federal government." Dr. Cain quoted Lew's comments on how default would slow down Medicare and Medicaid reimbursement.

No Prioritized Payments, Says Lew

In his testimony before the Senate Finance Committee, Lew dispelled the notion that a government unable to borrow enough money to meet all of its obligations could prioritize them — paying some bills right away, but not others — based on hard cash at hand.

"We should never be put in a position where we have to pick which commitments our nation should meet," Lew stated. "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?"

Aside from the fairness issue, the government's financial systems are not designed to selectively pay bills as they come in, according to Brian Collins, a policy analyst at the Bipartisan Policy Center in Washington, DC. Instead, the Treasury Department has indicated that the best way to operate during default is to meet each day's obligations — Medicare, Social Security, whatever — only when it has enough money to pay them all at once. This would mean delayed payments, because although revenue would flow into the federal coffers every day, it would lag behind daily obligations.

This so-called delay scenario looks something like this, said Collins. On the first day of default, a hypothetical $15 billion worth of bills becomes due. If there is only $7 billion available in revenue, the Treasury Department would wait until it accumulates $8 billion more — perhaps by day 3 of default — before it pays all of the day 1 bills. The government next would handle its day 2 bills, and so on, in similar fashion.

Initially, the delays would amount to just a few days, Collins told Medscape Medical News, but they would stretch out to weeks if the state of default persisted indefinitely.


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