Debt Negotiations Collapse. What Does it Mean for Medicare?
Another week, another impasse in debt ceiling negotiations with 9 days to go before default. My favorite wonk, WaPo’s Ezra Klein, does a CSI-style autopsy of how we got here and a primer on the issue. We just proved to the world that Washington has become California: ungovernable. Credit agencies aren’t grading our ability to raise the debt ceiling, they’re grading our ability — or as now demonstrated, our utter inability — to deal with our deficit and pressing economic matters in a functional manner.
It’s clear that markets are going to have to force the House GOP to swallow a compromise that will satisfy Wall Street. We’ll get the first test of that tonight when Asian markets open. And then Monday morning we can pray that Wall Street flirts with mobile network meltdown as GOP donors warn their beneficiaries on the Hill of unmitigated disaster before Standard & Poors and Moody’s drop the bomb.
Let’s say it takes a few weeks for the credit agencies to weigh in and US bondholders show some admirable restraint. In August the real pain starts as the government literally runs out of money and the President has to start making decisions about which bills to pay. This has never been done before in US history. The Bipartisan Policy Center produced a terrifying report on how it might actually work. Treasury will only be able to pay 55-60% of the federal government’s bills in August. So where does Medicare fit in?
It’s certainly possible that FFS provider payments or the next month’s Medicare Advantage or Part D capitation payments could get held up in one or more months to come. The President may have to decide in the fall that “this month I’m paying interest on the debt, Social Security, military personnel pay, unemployment insurance and Medicaid payments — those Medicare HMOs and PBMs and all those doctors and hospitals — not to mention all those Federal employees, the Centers for Disease Control, and air traffic controllers — will have to wait.”
According to the BPC, the federal government needs to roll over $500 billion of debt in August. If we default, no one will want to buy that debt unless we’re paying a lot more for it. BPC points out a 10 percent premium would cost us $50 billion.That’s only the direct cost — the indirect costs are far worse. Because most debt instruments are pegged to the Treasury rate, you’ll see interest rates spike across the system. Every type of borrowing — from mortgages and college tuition plans to corporate lines of credit and acquisition financing — all of it will be hit. It won’t just be the federal government that pays. It’ll be the economy — and that goes way beyond Medicare missing a couple months’ of accounts payable and then catching up.
If it isn’t yet clear: this is really, really bad news.