Debt Ceiling 2023: Is Medicare in Danger?

Speaker of the House Kevin McCarthy (R-CA) and Democratic President Biden are squaring off over the national debt.

In early January, Secretary of the Treasury Janet Yellen warned Congressional leaders that the debt ceiling would soon be reached, and that "extraordinary measures" may allow the Treasury to fulfill its obligations through June. Some of the Treasury's main concerns include making payments on outstanding debt, like Treasury bonds, as well as paying Social Security and Medicare benefits to those enrolled in the programs. Negotiations between Democratic President Biden and the Republican-controlled House of Representatives are leaving many entitlement program beneficiaries concerned for the future.

Danger in default

While additional borrowing is temporarily suspended, the Treasury is not yet ceasing payments. Through the use of"'extraordinary measures," including dipping into certain investment funds, the Treasury can continue to pay obligations as they become due, if only for the time being. The Treasury estimates that it can honor its obligations through June, buying limited time for politicians to find a compromise.

The biggest questions are what will happen should the Treasury run out of funds and in what order it will happen. While the Treasury distributed over $1.44 trillion in 2023, outlays associated with Medicare represented only $150 billion, or just over 10% of the Treasury's outflows.

Whether the Treasury can prioritize spending on Medicare and other vital programs is up for debate. Some House Republicans are preparing a contingency plan in the form of a proposal that would direct the Treasury to pay certain obligations before others. Whether Medicare and Social Security benefits would be included on the list of preferred obligations is not yet clear. Meanwhile, Treasury representatives and economists have claimed such prioritization to be unrealistic.

Danger in negotiations

More likely than Medicare and other entitlement programs being reduced, paused, or prioritized is that the programs will be part of the negotiations between the Republican House and Democratic White House. Raising the debt ceiling requires approval from both branches of Congress, giving House-majority Republicans a great deal of leverage.

How debt ceiling negotiations will end, or even what House Republicans will seek in exchange for a ceiling increase, is not yet clear. Republicans have long called for fiscal responsibility and a reduction in government spending, but the steps they will take to get there depend on who you ask within the party. The Republican Study Committee, composed of a majority of House Republicans, published a 2022 budget plan in June of last year proposing, among other changes, a gradual increase in the Medicare eligibility age to 67, and in the Social Security eligibility age to 70. However, party leadership, including Former President Trump, have pushed back against entitlement reform altogether.

In light of the debt ceiling crisis, many Americans are concerned about how the future of Medicare and other entitlement program benefits will impact their personal finances. While a reduction or pause in benefits seems unlikely and would be unprecedented, significant changes to the programs are not out of the question. Americans can expect to learn more about the Republican agenda following a Wednesday meeting between House Speaker Kevin McCarthy and President Biden.