United Liberty

With the Supreme Court upholding the worst parts of ObamaCare, many are again speculating on the budgetary impacts of the law. We know that the price tag for the law was $1.76 trillion dollars, according to a revised estimate by Congressional Budget Office (CBO) published back in March; up from the original estimate of under $1 trillion when the law was passed in March 2010. Charles Blahous found that the law would add $340 billion to the deficit over the next 10 years.

But the CBO now says that the laws impact on the deficit, given last week’s Supreme Court ruling, is unclear, but they are diving into the numbers:

The nonpartisan Congressional Budget Office said Thursday that it will “take some time” to assess the budget impact of a Supreme Court ruling upholding President Obama’s healthcare reform.

“CBO is in the process of reviewing the Supreme Court’s decision related to the Affordable Care Act to assess the effect on CBO’s projections of federal spending and revenue under current law. We expect that this assessment will probably take some time,” CBO Director Doug Elmendorf said in a terse statement.

There is uncertainty in how the Supreme Court’s ruling limiting the ability of the federal government to force states to expand Medicaid coverage will play out.
[…]
The Supreme Court ruled Thursday that the government cannot withhold all Medicaid funding from states that do not agree to expand Medicaid coverage to more adults. If the 26 states that have sued to overturn Obama’s healthcare reform all refuse to expand Medicaid, then federal spending would conceivably be smaller.

Over at Forbes, Avik Roy, who has written some great pieces about ObamaCare, explains why the Supreme Court ruling, contrary to the above, may actually increase the deficit, worsening the river of red ink already flowing from Washington:

The Affordable Care Act, as passed, expanded Medicaid to cover all adults below 138 percent of the federal poverty level (100 percent of FPL is $23,050 for a family of four). In addition, the law created state-based exchanges, which sell subsidized private insurance, for people between 100 and 400 percent of the federal poverty level. Roughly half of the law’s coverage expansion—17 million, according to the Congressional Budget Office—comes from Medicaid, and the other half—16 million—comes from the exchanges and other instruments.

Democrats structured the law this way because Medicaid is much less expensive, on a per-person basis, than are the subsidized exchange plans. In addition, Medicaid is partially funded by the states.

However, now that states can opt out of the law’s Medicaid expansion, states that currently cover people above 100 percent of FPL with Medicaid now have a significant financial incentive to shrink Medicaid eligibility down to 100 percent of FPL, and let the federal government (read: taxpayers in other states) pay for the rest.

This, again, will lead to substantially higher costs for the federal government, because exchange subsidies are much more generous than Medicaid is.

A countervailing aspect to the ruling is that, for the 23-24 states that have minimal Medicaid programs, many people below 100 percent of FPL may not get any insurance coverage at all, and the federal government pays for the majority of that spending under the Affordable Care Act. But several big states like New York have expansive Medicaid programs, and would now have the option to pare back their Medicaid programs.

Via Roy, Douglas Holtz-Eakin points out that the likely increase in federal budget deficits will be up to $100 billion:

The federal government would save as much as $130 billion in Medicaid in 2014, but it would be on the hook for $230 billion in new insurance subsidies. The net bottom line: a $100 billion annual expansion in federal costs.

Of course, not all states may forego the expansion, without doubt fewer than 100 percent of those eligible will take up subsidies, and actual insurance choices are impossible to foresee perfectly. Accordingly, the net cost will be lower than the full $100 billion, but it seems safe to say that the ACA will leave the taxpayer on the hook for an additional $500 billion or so in federal costs over the first 10 years.

There may be some fiscal benefit to the Supreme Court ruling since states can now opt-out of Medicaid expansion, but whatever benefit is gained will be partially, if not entirely, wiped out thanks to the exchanges, which are, unfortunately, still required to be implemented.