Tax Analysts Blog

Supreme Court Could Create $353 Billion Deficit Problem

Posted on Jun 22, 2015

The wait continues for the Supreme Court's decision in King v. Burwell -- the Court did not release the opinion on June 22. If the Court decides in favor of King -- basically making residents of 34 states ineligible for healthcare credits -- that will gut President Obama's healthcare reform effort, essentially leaving lawmakers with the choice to either fix or repeal the Affordable Care Act. Republicans are eager to do the latter, but the Congressional Budget Office may have made that more difficult. The CBO says that outright repeal would cost $353 billion over 10 years based on a static scoring model.

The CBO's number is slightly lower if dynamic scoring is used -- $137 billion over the period of 2016 to 2025. The CBO's estimates are much higher than the last set in July 2012, in which former Director Douglas Elmendorf's staff said repeal would cost $109 billion from 2013 to 2022 under a static method. Although this might seem ironic given that Republicans replaced Elmendorf to ensure that their priorities would receive more favorable scores, the real reason the 2015 score is much higher is that the costs of ACA repeal become greater over time.

Republicans were quick to point out that the report proves that the ACA is a drag on the economy. Wyoming Sen. Mike Enzi said the lower number produced by dynamic scoring shows that the ACA is an anchor on the economy and noted that economic growth would be boosted by 0.7 percent if the law was scrapped. That might be true, but $137 billion is still a lot of money for Congress to find. Remember, lawmakers are having trouble just finding revenue for the Highway Trust Fund.

If the Supreme Court strikes down the creation of federal exchanges, it will force Congress or the administration to do something. There's already been speculation that the credits would be allowed to stand for this year, with the true effects of the Court's decision not being felt until future years.

There are a few simple solutions, but none of them seems likely. Some or all of the 34 states that didn't create their own exchanges could be allowed to set them up now. The problem is that those states are almost entirely (or partially) controlled by Republican governors or legislatures. Louisiana Gov. Bobby Jindal (R) has already said he won't allow the creation of a state exchange, although Ohio Gov. John Kasich (R) seemed more open to the idea.
Alternatively, Congress could simply pass a quick fix to the language of the statute, making it clear that the federal government was allowed to set up exchanges when the states declined. That's the solution Democrats are pushing for. In fact, they make it seem like it is the only choice, ignoring that the GOP controls both the Senate and the House.

It's a bit strange to think that it's the Republicans' responsibility to fix a law that was incompetently drafted by a Democratic Congress. And the House and Senate don't seem inclined to follow that path anyway. They, of course, want to repeal the law and replace it with something a lot simpler (and potentially less effective at ensuring that all Americans have healthcare insurance). But the CBO may have made that path even more difficult than it already was. Already facing the prospects of a presidential veto and chaos in several dozen states, Republicans would have to find either $137 billion or $353 billion to plug the hole that would be caused by the collapse of the ACA.

Maybe GOP leaders and presidential candidates are secretly hoping that the Court will simply uphold the exchanges and keep this messy issue off their plates for the time being.

Read Comments (9)

Mr.HJun 22, 2015

The CBO estimates include restoring the cuts to Medicare spending. The Supreme
Court case will not affect the Medicare cost reductions, and the effect on the
deficit will be much different than the $353B increase for a complete ACA
repeal

charlesJun 22, 2015

The CBO doesn't score judicial or executive branch decisions

edmund dantesJun 22, 2015

"the real reason the 2015 score is much higher is that the costs of ACA repeal
become greater over time. "

It's unclear to me what these costs are, given that the Feds are taken off the
hook for healthcare credits. The direct costs of Obamacare must go down, what
is it that is going up in its place? More Medicaid spending?

Or is the assumption that the Cadillac plan tax gets automatically repealed?
That would certainly be a growing revenue "cost" over time, if one assumes that
all the state and local governments plan to pay the tax instead of changing
their health care plans. I don't see that happening, nor will the cadillac
plan tax be repealed, even if the health care credits are struck down following
the literal language of the law.

CBO needs to be much more transparent about the assumptions behind their
projections. The projections they made when Obamacare was rammed through
Congress were so far off the mark no one even refers to them anymore.

Healthcare for allJun 25, 2015

Thankfully, the Court realized that this was an ambiguously written part of the
law that was at odds with the rest of the law and Congressional intent.
Scalia's selective use of the plain meaning canon is all political.

Republicans have no regard for the lower and middle classes.

Obamacare isn't perfect, but it helps millions and a step in the right
direction.

edmund dantesJun 25, 2015

Problem solved! We don't need no stinkin' Congress.

However, it is going to turn out that we have a $353B deficit increase by
keeping ACA. We just won't know it for a couple more years.

healthcare for allJun 28, 2015

Please, don't be overly simplistic. It's not that we don't need Congress. We
have three branches of government that are supposed to check and balance each
other. The Court didn't create a new law; it merely correctly interpreted the
law.

Also, you forget the millions Obamacare helps, which helps all of us.

edmund dantesJun 28, 2015

@healthcare for all, sorry for my bitterness, I am among the 5 million people
who lost great health care insurance because of Obamacare. I was made much
worse off, higher costs coupled with higher deductibles, coupled with no
coverage for name brand drugs that I need. Because I was lied to about being
able to keep my plan, I find discussions of the virtues of Obamacare to be
trigger events.

healthcare for allJun 30, 2015

And that's why I stated that Obamacare isn't perfect. Sorry to hear about your
particular situation. But, there are millions who say Obamacare is a life
saver for them.

Conservatives cringe at the following statement: we need socialized/universal
healthcare. But, we do need it and it works.

Obamacare attempts to please both sides of the debate, but it really doesn't.
It didn't go far enough.

edmund dantesJul 5, 2015

Two recent items in the NYTimes demonstrate the fundamental failure of
Obamacare. First, obesity clinics are now thriving because, oddly enough, their
services are now fully covered by Obamacare. Second, premiums around the
country are going up 25% to 50% next year. That's partly so everyone has
access to fully paid obesity clinics. Also, the article notes, some lucky
people were allowed to keep the coverage that they liked, which meant that the
Obamacare policies had worse actuarial performance than projected.

This isn't insurance, it's prepaid medical services. Most of which I don't
want. I only want catastrophic coverage, actual insurance. For stuff like
cancer and heart attacks and accidents. I'll pay for my routine care out of
pocket, thank you. But that is now illegal. Fully socialized medicine will
only make this worse.

My sense is that, in name of fairness, no one will be allowed to have great
insurance in the future, but at least everyone will have the same level of
mediocre care, making the liberals happy. Too bad Republicans are too
inarticulate to explain it.

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