The Feds Still Haven’t Reached A Debt Ceiling Deal. Here’s How A Breach Could Impact Healthcare

The federal government is continuing to debate a response to the looming debt limit deadline, and, should that ceiling be breached, it has significant implications for the healthcare industry.

Analysts at Moody’s Investors Service estimated the government will run out of money to pay its debts by June 8, which is consistent with projections from the Treasury Department and the Congressional Budget Office.

The report (PDF) said that as an agreement to address the debt ceiling has not yet materialized, a short-term breach is likely, which would still snowball into many sectors. However, if policymakers don’t act quickly, that could extend into a prolonged debt ceiling breach that stretches on.

The analysts assigned a 10% possibility to a debt ceiling breach, according to the report.

For healthcare, a major consideration is Medicare and Medicaid payments from the federal government, according to the report. Medicare alone accounted for 26% of spending on hospital care as well as 26% of physician and clinical services in 2021, according to a January analysis from KFF.

In the short term, providers, particularly those in rural areas, would have to stretch their already limited financial wiggle room to account for delays or cutbacks in payments as the government focuses on covering its debts, according to the report.

If the breach were to stretch on, it could lead some providers to cut back the number of Medicare and Medicaid patients they treat, the analysts said. The Veterans Affairs health system, which is operated by the federal government, could also suffer in an extended debt ceiling breach.

“Other government transfers to households, including Social Security and unemployment insurance benefits, are also impacted,” the Moody’s analysts said. “As these payments are delayed, spending and confidence weaken, especially in areas with a larger number of lower-income households or a larger retiree population.”

Beyond hospitals, skilled nursing facilities and other long-term care providers rely heavily on Medicaid for coverage of their services, and it’s the largest payer in this space, according to a 2022 report from KFF. In 2020, for instance, Medicaid paid 54% of the more than $400 billion spent on long-term care, according to the report.

A debt ceiling breach also has implications for plans offered on the Affordable Care Act’s exchanges, Politico reported. Plans operating on the individual markets likely have some reserves that would allow them to pay claims for a short time, but those who receive subsidies could see their premiums skyrocket if the Treasury Department is unable to pay them.


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