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SCOTUS/ACA and the Federal Balance Sheet

Posted by John McDonough  June 10, 2012 04:05 PM

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A most intriguing article relative to the Affordable Care Act this past week was Jonathan Allen's Politico piece -- "How Scotus could help Congress save billions." It addresses a largely unexplored part of the U.S. Supreme Court's consideration of the ACA/ObamaCare -- the unintended federal budget consequences of the Court's looming decision. Allen's piece is spot-on, and the issue goes even deeper than Allen suggests.

Here's a chart I use a lot, explaining the uses and sources of financing in the ACA, divided among the law's essential nine titles:

ACA $$.png


All numbers are from the final ACA analysis by the Congressional Budget Office before President Obama signed the law on 3/23/2010. Yes, lots of numbers have moved and shifted since then, but the basic dynamic holds. The lion's share of the uses of ACA spending are for Title I -- the private health insurance subsidies to help individuals and families with incomes between 139 and 400% of the federal poverty line afford insurance, and for Title II -- the Medicaid expansions for uninsured low income persons with incomes below 139% FPL.

The lion's share of the sources of ACA funding come from Title III -- $450 billion reductions in Medicare spending increases, and from Title IX's revenue increases, chiefly increases in Medicare taxes on high income earners and new taxes on the pharmaceutical, medical device, and insurance industries.

Allen's smart question -- what are the federal budget consequences of the various SCOTUS options? Let's consider the biggest options and the likely impact:

First, uphold the law. CBO projects that the ACA reduces the federal deficit by hundreds of billions -- even with the suspension of the CLASS Act (Title VIII). Those numbers are already baked into federal budget estimates, so no changes up or down if SCOTUS goes this way.

Second, strike only the individual mandate in Title I. CBO estimated this past March that just eliminating the mandate would reduce the federal debt by about $282B between 2012 and 2021. Even though an estimated $27B in mandate penalties would not be collected, that would be more than offset by fewer uninsured persons enrolling in Medicaid ($149B) or the health insurance exchanges ($69B), as well as higher tax revenues because uninsured would continue paying full taxes on their wages instead of on tax-advantaged employer health insurance ($80B), and through more employer penalties and fewer employer tax credits ($11B). Instead of about 32 million uninsured obtaining coverage, the number would be in the neighborhood of 16 million, about half.

Third, strike the individual mandate and insurance market reform, chiefly "guaranteed issue" and the banning of pre-existing condition exclusions. If SCOTUS strikes down the mandate, linking these two is the fervent hope of the health insurance industry. Some predict linking the elimination of these two would trigger even larger savings because insurers in 45 states would make sure not to cover older and chronically ill folks. Allen quotes a CIGNA source projecting savings up to $500B in this scenario -- that seems high to me. More likely is for insurers to increase premiums substantially for the vulnerable groups and the federal government will end up paying much higher subsidies to cover far fewer persons than would be the case under options 1 and 2.

Fourth, strike the Medicaid expansion in Title II -- on its own, that would eliminate coverage for 16 million (Urban Institute estimates vary between 8 and 24 million!) saving around $936B (the most current CBO estimate) or more through 2022. Add in any element of option 2 or 3 and the federal budget savings go much higher as the poor lose their only coverage option.

Big question: would the 5-4 SCOTUS majority (that's what it will be for any option other than #1) reach into the law and also eliminate the financing mechanisms in Titles III and/or IX on the rationale that they are throwing out the purposes for which the monies are being raised? Hard to imagine? Not when that 5 justice majority parties hard.

Still, seems to me, there is only one plausible way for SCOTUS to repeal the funding increases, and that is:

Fifth, to repeal the entire law. Yes, of all the five options, this is the only one that actually increases the federal government's budget deficit and debt, and by an increasingly large number every year moving forward. But since Republicans in Congress -- plus Mitt Romney -- say it ain't so ("we believe CBO when their conclusions agree with our hypotheses, and we disbelieve them when they disagree with us"), then it's "what me worry" time.

It would be tragically ironic (for 32 million uninsured, and counting), though ironic nonetheless, if Congress and the President were to dig out of their looming year-end financial crisis by embracing the new taxes and Medicare reductions in the ACA.

Ironic, yes, and plausible, yes too. All courtesy of our Supreme Court.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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