An Uncertain Future For Medicare and Medicaid

A default scenario is so unthinkable that not too many people have thought about what happens to Medicare and Medicaid if a deal isn’t reached.

One longtime Washington health hand said he had not contemplated the overall picture of what happens after Aug. 2 without a deal because, “I think it’s unlikely, but it’s also kind of [too] horrible” to think about.

But people are getting nervous enough that it’s time to give the issue real thought, said Julius Hobson, former congressional affairs director for the American Medical Association.

“I think up until last week people were buying into that usual, conventional wisdom that they’d get that grand deal, and now they’re being disabused of that notion,” he said.

So what does happen? Does Medicare keep making payments? If Social Security checks continue to go out, will Medicare premiums be withheld? Will states get their Medicaid dollars?

Most health experts gave answers to these questions like this one from Gail Wilensky, who ran the programs under President George H.W. Bush: “We’ve never been through anything like this, so I’m not sure anyone knows exactly.”

Though the experience of government shutdowns might be thought to provide the best precedent, there are several reasons why the administration might have to use an entirely different rule book if the looming fiscal crisis becomes a reality.

A “normal” government shutdown — such as the one that the White House and Congress narrowly averted in March — is brought on by the failure to enact appropriations bills. In legal terms, that means the administration doesn’t have the authority to spend money even if it has the cash on hand.

If a deal isn’t struck before Aug. 2, President Barack Obama will be faced with the opposite situation: Existing authorization bills obligate the administration to spend cash that it doesn’t have.

The Office of Management and Budget was the designated command center in making preparations for the shutdown that threatened in March. It ordered all agencies to draw up shutdown plans and designate “essential” personnel who would be allowed to keep working without congressional authorization.

But the funding crisis that could happen next month is not a question of what spending is permissible but rather what spending is possible. So Treasury will be in charge because it’s the one that pays the bills.

When CBO examined the implications of hitting the debt ceiling in 1995, it found, “Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing appropriations bills would. Employees would not be sent home, and checks would continue to be issued.”

But the administration will have to figure out which checks to issue and when after Aug. 2, since it will be missing about 40 percent of the cash required to pay its bills.

Many assume that the administration would prioritize which payments go out in order to minimize the political and economic disruptions. After paying interest on the debt, Social Security checks are widely assumed to be high on the list of priorities. Medicare payments are candidates for holding back because many experts believe a delay in payments would not jeopardize access as long as the crisis did not drag out too long and they were paid after the crisis ended.

But the president may not have such discretion, warns Jay Powell of the Bipartisan Policy Center.

“Everyone is assuming that if there’s no debt ceiling increase, the administration would make choices about what gets paid and what doesn’t,” Powell said. “The administration might find it lacks clear authority to make those decisions” because law requires the executive branch “to treat all congressional spending as equally binding.”

The BPC tried to break down the daily cash flow in the days following the Aug. 2 deadline to give an idea of what could get paid. On Aug. 3, there would be a $20 billion shortfall, with $2.2 billion left in Medicare and Medicaid bills to vie with $23 billion needed for Social Security payments, $1.4 billion in payments owed to defense vendors and $500 million for federal salaries and benefits.

Health spending’s place in the pecking order could change regularly, depending on what other bills come due and the amount of revenue.

Susan Irving, Director for Federal Budget Analysis who signed a February GAO report on the debt limit, observed that the cash flow system is a large and complicated machine.

“You’re talking about intervening in an automated system that electronically sends out about 80 million payments a month,” she said.

Matt Salo, executive director of the National Association of Medicaid Directors, said that states get their federal matching money in quarterly payments on the first of the month, so Sept. 1 would be the first big date for the program.

Amid all this uncertainty, the only thing that’s clear is that the country would be in uncharted territory if there’s no deal before Aug. 2.

“This is like Y2K, no one knows,” Salo said.