WASHINGTON — Clinicians should be “concerned but not panicky” about the potential effects on Medicare, Medicaid, and other healthcare payments as the federal government approaches a “debt ceiling,” experts say.
“The federal government has never defaulted,” said Bill Hoagland, senior vice president of the Bipartisan Policy Center, a nonpartisan think tank here. Healthcare providers “should be concerned, but not overly worried” about the issue, “because I do believe that we will continue to raise the debt limit; we’ll find a solution here.”
Similar to a Credit Card Limit
Think of the debt ceiling as “similar to a credit card limit” that limits your credit card spending to a certain amount, Hoagland explained. “It’s a law that Congress passes that sets a total limit on all federal outstanding debt. And essentially, we hit it because we have made [financial] commitments that have to be honored,” including funding that has already been authorized by Congress in the current budget.
The current debt limit stands at $31.4 trillion, “and we’ll hit that either this evening or tomorrow sometime,” he said. “That means we can no longer borrow money and no longer pay any of our outstanding debts that are due.” How much do those outstanding debts amount to? According to the Congressional Budget Office, if no changes were made in the federal budget out to 2032, we would owe a total of $45.4 trillion.
What happens if the government hits the limit? If nothing else is done, “we wouldn’t be able to pay interest” to those who have lent the U.S. money through the purchase of Treasury bonds and other securities, he said. About $7 trillion of the current debt is held by foreign investors — China being the largest — but there are also private citizens, insurance companies, small businesses, and others who have similar investments. But it also means not being able to pay “anybody who receives a government check in any way, shape, or form, so we wouldn’t be able to pay Social Security benefits, hospitals for Medicare or Medicaid, or any of our [government] expenditures,” Hoagland said.
Fortunately, however, there are steps that Treasury Secretary Janet Yellen can take to prevent the government from reaching that point, Hoagland explained. One step, which she took last Thursday, involves the retirement accounts that federal government workers pay into. Under normal circumstances, that money is invested in Treasury bonds, but under “extraordinary circumstances” such as these, Yellen can stop that money from being invested in bonds, and instead use it as cash to pay our obligations. If the debt limit is then raised later, she can pay back those funds to the retirement accounts for investment in securities, making them whole once again.
“Treasury secretaries in every administration over recent decades have used these extraordinary measures when necessary. Yet the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time,” Yellen said in a letter to congressional leaders. “It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit.”
Firmer Deadline in June
Although it is uncertain how long taking these measures will enable the federal government to continue meeting its financial obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen wrote. “Consistent with past practice, I will, of course, continue to keep Congress informed as we approach the exhaustion of our resources.”
“Early June” is likely a conservative estimate, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan organization that educates the public on budget-related issues, said in a phone interview. “Usually it’s one or two months afterward” that the money would actually run out, she said.
The debt ceiling is getting a lot of attention this year because Republican House members are developing a contingency plan of which payments to prioritize if the debt ceiling isn’t increased and the borrowing limit is reached, according to the Washington Post. “For instance, the plan is almost certain to call on the department to keep making interest payments on the debt, according to four people familiar with the internal deliberations who spoke on the condition of anonymity to describe private conversations,” the Post reported. “House Republicans’ payment prioritization plan may also stipulate that the Treasury Department should continue making payments on Social Security, Medicare and veterans benefits, as well as funding the military, two of the people said.”
House Speaker Kevin McCarthy (R-Calif.) said Tuesday that dealing with the debt ceiling should include a discussion about ways to cut the budget and begin paying down the debt. “Why wouldn’t we sit down now, set a path to get us to a balanced budget, and let’s start paying this debt off and make sure the future generation has as many opportunities as we do,” he said. “Let’s sit down and find a place that we can protect Medicare and Social Security for the future generations. Let’s put our house in order and how we’re going to spend and let’s make the investments we need to make America stronger.”
The Biden administration disagrees. “As President Biden has made clear, Congress must deal with the debt limit and must do so without conditions,” White House Press Secretary Karine Jean-Pierre said in a press briefing on Tuesday. “But congressional Republicans are threatening to hold the nation’s full faith and credit — a mandate of the Constitution — hostage to their demands to cut Social Security, to cut Medicare, and to cut Medicaid, brinkmanship that threatens the global economy.”
Problems with Prioritization
Not approving the debt limit and using some sort of “prioritization” plan is not a good idea, Hoagland said, citing the example of choosing to prioritize paying the interest due on Treasury bonds. “Well, explain to me, Mr. Congressman — you’re going to pay the Chinese debt-holders or Japanese debt-holders their interest payments and not pay Social Security or Medicare? The politics of prioritization make no sense to me whatsoever.”
Moreover, he added, “how do you prioritize? The Treasury [Department] has said they do not have the capability to do this prioritization … The bottom line is, prioritization just does not work.”
To MacGuineas, all the talk about prioritization is the media getting ahead of the story. “The media made a massive, massive deal out of this prematurely,” she said. “There is a discussion about whether we should include something that would control some spending at the same time we lift the debt ceiling that a number of Republicans support. But that’s something that has been discussed and implemented many times in the past. There are histrionics going on that months from now may be appropriate, but are leading the story rather than following it at the moment.”
“What we do know is that a number of Republicans would like to make fiscal reforms as part of the debt ceiling increase,” she said. “The debt is in fact unsustainable, so it’s not at all an unreasonable request. The question is, how will it be handled? It can’t be handled by saying, ‘If you don’t do this we will default.’ Then it becomes cause for histrionics. But if [people say], ‘We should negotiate this, just like we did many, many times in the past’ and come up with a plan to either control spending or put in place a fiscal commission… that’s very reasonable and the sooner they get to work on having those discussions, the better.”
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