What Happens to Medicare/Medicaid If There’s a Government Shutdown?

I hate to have to say it, but the “fiscal cliff” debate/debacle last month is going to feel like a speed bump compared to what’s coming here in DC on the debt ceiling next month.  At the height of its dysfunction right now, the relationship between the President and the Congress points to a near-inevitable government shutdown in the next 60-90 days.  Which raises the question of what happens to Medicare and Medicaid when DC closes its doors.  The answer?  It depends on how long the shutdown lasts, but it ain’t pretty no matter what.  If it goes longer than 30 days, it’s going to hurt, bad.

As the battle lines develop, that’s looking increasingly possible. More than half of House GOP members, including some party leaders, are prepared to shut down the government to make their point on cutting spending as part of any debt ceiling deal. House Speaker John Boehner “may need a shutdown…so they have an endgame and can show their constituents they’re fighting,” said a House leadership advisor. The government will shut down if the House GOP were to refuse to extend the law funding government operations on March 27.

A full-blown extended government shutdown hasn’t happened since the winter of 1995-1996 — my last year as a Clinton appointee at HCFA, now CMS.   The shutdown was a 2-part ordeal, lasting 5 days in November 1995 and another 21 in December 1995 and January 1996. Medicare continued to pay physicians and hospitals during the shutdown, and the ability to reimburse providers and plans was never in question, because claims are paid out of Medicare trust funds that are separate from Congressional appropriations.

However, payments to CMS’s Medicare vendors for claims processing comes from the CMS operating budget, which — unlike the trust funds — is vulnerable to Congress turning off the spigot. Therefore, in 1995 and 1996, CMS’s claims vendors processed and paid claims on a credit basis, with the expectation of being made whole later.  An HHS official warned during a Congressional hearing on the 1995-1996 shutdown that Medicare claims vendors “would have to cease Medicare payments if their cash ran out due to a longer hiatus.” So if the shutdown were to last for many months, Medicare fee-for-service benefits and payments to providers would stop. Health plans are paid on the 1st of the month, so as long as a shutdown doesn’t exceed 30 days, there should be minimal disruption to cash flow.

Most in Washington expect Medicaid’s core functions to continue unimpeded during a shutdown — as long as it’s fairly short. “According to the House Committee on Energy and Commerce, because Medicaid allotments are paid to states in advance on a quarterly basis, it is likely states will not see an immediate impact from a temporary government shutdown,” Rep. James Renacci (R-OH) says in a shutdown bulletin on his website. That means physicians and other health-care providers should continue to be paid as usual as they serve the Medicaid and SCHIP (State Children’s Health Insurance Program) populations. If Congress runs up to the midnight deadline with no plan to fund the government, federal agencies including CMS must designate which workers are performing essential work. Those people would be asked to stay on the job, while nonessential workers would be furloughed. It’s unclear if furloughs might have ripple effects for some Medicaid services, such as enrolling new beneficiaries for coverage.

So, short answer: both entitlements are likely to continue to operate and administer benefits and payments during a government  shutdown — but only if it’s brief.  If a political impasse occurs and a shutdown stretches into weeks or even months, it’s anybody’s guess what happens to Medicare and Medicaid.  And if there’s disruption to payments, for even a few weeks, the economic and health care consequences will be severe.

Welcome to the “new normal” in the age of austerity here in DC.


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