REFORM- Debt Breach Risks $71 Billion in Medicare, Medicaid Pay Delays

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[MM Curator Summary]: “Advocates” are already trotting out the Boogeyman that “uncertainty” over debt ceiling talks could maybe someday impact state payments to Medicaid providers. This has never happened and it will not happen.



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It’s still early, by Washington standards, in negotiations to raise the debt ceiling.

But as the once-routine process continues to devolve into a high-stakes game of chicken, the real-life impact of a debt limit breach on Medicare and Medicaid is already causing angst for policy watchers. President Joe Biden was scheduled to meet with House Speaker Kevin McCarthy (R-Calif.) and other congressional leaders at the White House Tuesday hoping to avoid a looming default.

The Bipartisan Policy Center projects that without action on the debt limit, the “X Date”—when the Treasury is unable to meet all of its financial obligations—will probably occur sometime between early June and early August. That could affect or delay some $49 billion in Medicare payments to medical providers and suppliers and $22 billion in Medicaid payments to states that are both due by June 9, according to the BPC.

For hospitals, doctors, and other health-care providers still working to regain patients amid rising labor and supply costs due to Covid-19, a debt ceiling standoff adds unwelcome uncertainty to their usually reliable Medicare reimbursements. And while reserve funds in most states have swelled during the pandemic, a debt-ceiling stalemate could require using that money to cover delayed federal Medicaid payments, which would leave less to help soften the effects of declining tax revenue and a possible recession.

“A state may say ‘we have sufficient state funds set aside that will cover 100%'” of the federal Medicaid matching payment “with the understanding that we will be reimbursed once this issue is settled,” said G. William Hoagland, a senior vice president at the Bipartisan Policy Center.

But because “all of the different federal sources of funding that states depend on could potentially be jeopardized at the same time” in a debt-limit breach, “I don’t think it’s safe to assume that states would automatically jump in and pay their Medicaid providers,” said Allison Orris, a senior fellow at the Center on Budget and Policy Priorities.

‘A Lot of Lawsuits’

“If the states did not pay, I’m sure there will be a lot of lawsuits,” said Margaret A. Murray, CEO of the Association for Community Affiliated Plans, which represents 79 safety-net health plans nationwide. Medical providers who serve Medicaid patients “don’t always have great reserves to be able to afford to see patients that they’re not being paid for. So I think it’s going to cause a lot of chaos,” Murray said.

Delaying payments could also reduce beneficiary access by pushing providers “over the edge” and causing them to see fewer Medicare and Medicaid patients, said Tricia Neuman, senior vice president of KFF and executive director of its program on Medicare policy.

“It’s hard to say, for sure, what would happen because a debt-limit breach has never happened,” Neuman said. “But failure to raise the debt limit for a prolonged period of time could be hugely destabilizing for Medicare and Medicaid. And it could be disruptive for hospitals, physicians, and other health-care providers.”

Hospitals faced their worst year of the pandemic in 2022, and now face new fiscal challenges related to the May 11 end of the public health emergency. Uncompensated care costs for hospitals are likely to rise this year as the Medicaid “unwinding” increases the numbers of uninsured and underinsured.

And continued medical inflation and other cost pressures are projected to $98 billion in additional costs for hospitals from 2022 to 2023, according to a study by McKinsey. Delayed Medicare and Medicaid payments would only add to their struggle.

Impact on Managed Care Plans

Slow payments would also have downstream effects for private Medicare Advantage plans and Medicaid managed care plans, which “could in turn, have problems meeting their own obligations, paying their staff, and covering their bills,” Neuman said.

The nursing home industry is especially sensitive to that possibility.

“With the long-term care industry already experiencing a historic workforce crisis and recovering from the pandemic, any disruption of lifeline reimbursements will result in devastating consequences for our nation’s most vulnerable individuals who need access to care,” said a statement from the American Health Care Association and the National Center for Assisted Living.

Medicaid’s role in the debt-ceiling debate is complicated by the House Republican bill to raise the debt limit, H.R. 2811. The legislation would cut federal spending by about $130 billion and require able-bodied adults without dependents to complete work-related activities each month or risk losing their Medicaid coverage.

The proposal has little chance to pass the Senate but nonetheless has made Medicaid an unlikely political cudgel as debt-limit negotiations continue.

“I don’t think Medicaid should be used as a bargaining chip right now, given all the other things we’re going through with Medicaid, in terms of staff reductions and redeterminations,” Hoagland said.

“This is just not the time to make work requirements part of the debt limit discussion,” he said. “It doesn’t save a lot of money, It’s more ideological than it is substantive in terms of budget.”