Time is running out to avert a debt default for the US, and some experts are warning of the potential impacts on Medicare and Social Security.
On Thursday 19th January, the country’s total borrowing exceeded the maximum permissible limit.
The limit of debt is the absolute sum the US can have a loan of to meet their legal commitments including Medicare and Social Security benefits, military salaries, interest payments, tax refunds, on other payments and national debt.
Janet Yellen Treasury Secretary wrote in a letter on Jan 13th cautioned Kevin McCarthy the House Speaker, along with other leaders of congress about the potential “irreplaceable damage” to the economy of the US, citizens’ livelihoods, and if the issue is not resolved we could face financial stability.
This past Thursday, the US resorted to “unusual ways” to prevent a default on its liabilities, Yellen declared in a letter to representatives of Congress.
The Department of Treasury couldn’t predict how long our government can go on paying its obligations, Yellen added. Nevertheless, it is improbable that the money will run out before the beginning of June, she declared.
Negotiations regarding the national debt limit represent one of the initial significant challenges the our new Congress will confront.
McCarthy has consented to link raising the debt to budget reductions. That has supporters of Medicare and Social Security concerned that legislators will attempt to modify those programs.
According to Dan Adcock, who is the Director of Policy and Government Relations for the Committee to Preserve Medicare and Social Security, a potential disaster is expected to take place in June.
He further noted that the impact of not being able to meet the debt obligations can be catastrophic, not only to the payment of Medicare and Social Security, but also to the entire global economy.
Potential delays in the disbursement of benefits could occur.
It would be an unprecedented event if America defaulted on its debt. The Treasury Department must decide what will and will not be paid in such an occurrence. In comparison to a government shutdown where Medicare and Social Security benefits remain uninterrupted, that would not be the situation in the event of a default, as Adcock stated.
He also said that any disruption of benefits for retirees, people with disabilities and survivors might be possible. A brief postponement could hamper a beneficiary’s capacity to cover costs such as health care, food, rent, utilities, and other essential outgoings, according to the National Committee to Preserve Medicare and Social Security.
Jason Fichtner, a previous official at the Social Security Administration who is presently the Chief Economist at the Bipartisan Policy Center, suggested that the Treasury Department may be able to prioritize certain payments, including Social Security.
Yet, the Social Security Administration could delay payments to ensure that it has enough funds, he said. In addition, Medicare payments could vary, while other types of government disbursements, such as salaries for federal workers and food benefits provided through the Supplemental Nutrition Assistance Program (SNAP) may cease. As per Fichtner, the process could be quite complicated and politically sensitive.
People are concerned about the possibility of reductions in Social Security benefits due to its potential financial insecurity.
House Republicans are preparing to concentrate on restraining government expenses, with some being concerned that this could involve cuts to Social Security advantages and Medicare in return for votes to either raise or postpone the debt ceiling.
Among the suggestions put forward by Republicans are to enhance Social Security’s retirement age to 70, modify the method of measuring annual cost-of-living adjustments to make them less generous, or make benefits means tested to the middle class, as mentioned by Adcock.
In addition, they could increase the Medicare eligibility age to 67 from 65, he mentioned.
These alterations would require adequate backing in the Senate, with 60 votes.
The White House has made it known that it does not intend to engage in any type of negotiations. Karine Jean-Pierre, a Press Secretary for the President, stated on Tuesday that President Biden has been adamant that Congress should tackle the debt limit, and do so without any conditions.
According to Fichtner, in order for any type of Social Security reform to be effective, both parties must be willing to compromise. If a bipartisan legislative proposal is not put together by June, it will be hard to include Social Security in the debt limit talks. Fichtner explained that a “grand bargain” comprising of adjustments to the benefit formula and revenue increases would be needed, and this is something that cannot be done quickly during a debt crisis.
