As the United States nears a potential debt default, experts warn that there could be a "catastrophic impact" on healthcare, including for providers, patients, and public health as a whole.

How will healthcare be impacted by a debt default?

According to U.S. Treasury Secretary Janet Yellen, the United States could run out of cash to pay its bills by June 1, which would result in the country's first debt default. Currently, both Republican and Democratic lawmakers in Congress are working to reach a deal to raise the $31.4 trillion national debt limit.

Although the full impact of a U.S. debt default is still unknown, many experts say it would likely lead to significant consequences for healthcare.

"If the federal government can't pay the bills, the entire thing stops. The whole health system collapses," said Sara Rosenbaum, emerita professor at George Washington University.

Providers

According to Modern Healthcare, a debt default "could have a catastrophic impact on provider payments," depending on which programs the federal government decides to prioritize. Currently, around 70% of Medicaid spending comes from the federal government. Without these funds, states would have to decide whether to cover the difference, as well as which providers would be affected.

"For at least a month, maybe two months, hospitals and doctors offices and other providers would continue to get payments from the Medicare program, but for services that they provided potentially months ago," said Joseph Antos, a senior fellow at the American Enterprise Institute.

Without these payments, many providers will have to rely on cash reserves or negotiate other options with lenders. They could also eliminate elective procedures and other services, focusing primarily on providing emergency services. Rural hospitals would likely be the most impacted by delayed or stopped payments since they are more financially vulnerable.

"[E]ven approaching default could damage the economy, as we saw in 2011," said a CMS spokesperson. "While the precise impact on CMS' programs depends on many uncertain factors, it is clear that if the federal government is prevented from making good on its promises, there would be significant consequences for Medicaid, Medicare and the Affordable Care Act marketplaces."

Patients

According to Richard Isaacs, outgoing CEO of the Permanente Medical Group, a default could limit patients' access to care going forward. Patients facing less coverage will be more likely to delay seeking care. Some providers may also be more reluctant to accept patients who have Medicare or Medicaid.

"I think, in the short term, you get through it, and then you'll have a secondary impact because the revenue will need to come from somewhere," Isaacs said.

In addition, Republican lawmakers are pushing for Medicaid work requirements, which could lead to millions of low-income individuals losing health coverage. According to a new KFF analysis, around 1.7 million people could lose Medicaid coverage in 2024 if work requirements go into effect.

"We think that the work reporting requirements—really any form of it—will simply lead to millions of folks losing coverage and primarily because of red tape, administrative bureaucracy. We don't think that has any role in healthcare coverage," said Daniel Tsai, CMS deputy administrator and director of the Center for Medicaid and Children's Health Insurance Program Services.

Public health

As part of the debt ceiling negotiations, lawmakers are considering clawing back unspent COVID-19 funds. According to Politico, this could take away as much as $30 billion from state and local public health departments, which could significantly impact their efforts to reduce the spread of infectious diseases and prepare for future pandemics.  

"There's no doubt" the cuts to funding would hurt efforts to "rebuild our public health infrastructure," said Leandro Mena, director of the CDC's Division of STD Prevention. "If we don't have a robust workforce ready, who's going to be there when we have our next outbreak?"

"If they cut back that money, it'll set us back 15 years," said David Harvey, executive director of the National Coalition of STD Directors. "If that funding is taken away, instantly, overnight, we will lose our ability to have the boots-on-the-ground workforce to knock on doors, do outbreak investigations, navigate people through the health care system, and help people get tested and treated. It's really scary."

"Without a permanent funding stream, we're very worried about a resurgence and the ability of the system to test, treat and provide services that people need," Harvey said. "We're heading into what may be a complicated summer." (Hudson/Nzanga, Modern Healthcare, 5/24; Natter et al., Bloomberg, 5/24; Ollstein, Politico, 5/19; Hill, Politico, 5/18; Dreher, Axios, 5/8; Berryman/Nzanga, Modern Healthcare, 5/9; Burns et al., KFF, 5/5; Dean, Becker's Hospital CFO Report, 5/18)