Can ObamaCare survive success?

posted at 1:01 pm on June 30, 2012 by Ed Morrissey

The Supreme Court gave ObamaCare a new lease on political life by upholding the entirety of the law — well, almost the entirety of the law.  The decision by Chief Justice John Roberts threw out a portion of the bill in a dispute that didn’t get a lot of attention during the two-year legal fight, one that removes the penalties for states that don’t take part in the Medicaid expansion. Shortly after the decision was announced, at least three Republican governors announced that they would not expand Medicaid as dictated by the ACA.  Bobby Jindal of Louisiana declared in a conference call with the media that his state would not enact either the exchanges or the Medicaid expansion, which would force his state to absorb much larger costs.  Jindal wasn’t alone for long:

Gov. Scott Walker pledged again Thursday not to phase in any parts of President Barack Obama’s signature health care reform law ahead of November’s elections even though the U.S. Supreme Court ruled it is constitutional.

Walker, a Republican, has said he holds out hope the GOP will recapture the White House and gain full control of Congress and repeal the legislation. He reiterated his stance Thursday minutes after the court released its ruling.

“While the court said it was legal, that doesn’t make it right,” Walker said at a news conference. “For us to put time and effort and resources into that doesn’t make a lot of sense.”

In Kansas, HHS Secretary Kathleen Sebelius’ successor Governor Sam Brownback concurred:

A day after the U.S. Supreme Court upheld the constitutionality of the Obama administration’s Affordable Care Act, Kansas Gov. Sam Brownback said he had no plans to implement provisions of the health care law.

“This is now in the hands of the American public. Mitt Romney has said on Day One he’ll grant a global waiver from the implementation of Obamacare, so now it’s up to the American public to decide, and I’m going to see what’s going to happen in the fall election before we move forward,” he said on CNBC’s “The Kudlow Report.”

Chuck Blahous warns that the court’s change of the Medicaid-expansion provision makes ObamaCare much less sustainable and practically guarantees its failure:

The Supreme Court left intact most of the health care law’s provisions, excepting only one section that would have allowed the Secretary of HHS to withdraw “existing Medicaid funding” from states that fail to comply with the law’s expansion of Medicaid eligibility.

This is important. At first glance, it appears quite possible that this decision could:

  1. Considerably worsen the budgetary effects of the law, and;
  2. Result in substantial cuts, later in this decade, to the subsidies for low-income individuals who are compelled to buy health insurance under the law.

Blahous, a former economic adviser to George W. Bush and deputy director of the National Economic Council, argues that the states have very compelling reasons to stay as far away from the Medicaid expansion as possible.  The federal government covers the costs for the first few years, but after that it becomes a huge unfunded mandate.  If states refuse to participate — and remember, 26 states sued to block implementation of the law — the federal government will have to expand the subsidy program to help lower-income families in the 100-400%-of-poverty-line group buy health insurance.  And that means that ObamaCare costs will explode:

How much worse? No one (perhaps outside of CBO) can say. But under past estimates, a 1 million-person reduction in the law’s reliance on Medicaid has meant an increase in net costs of about $50-$90 billion over ten years. With 26 states joined in a lawsuit to be released from this forced coverage expansion, the fiscal worsening could be substantial.

The side effects of the court ruling don’t end there. The health law also contains a “fail safe” provision requiring that total costs of the health exchange credits be limited to 0.504% of GDP per year after 2018. In previous estimates, CBO projected that subsidy percentages would “eventually” be cut by this provision to keep their total costs beneath this cap. But if health exchange participation is to be significantly higher than previously projected, then costs will be also much higher. This would force significant cuts in subsidies to low-income individuals starting in 2019; the text of the law is explicit that the cap will be enforced by reducing these subsidies. Lawmakers would thus have to choose between allowing these cuts to low-income individuals to go into effect, and waiving the existing fiscal constraints of the health care law.

So much for the promise of cost control, which was always a shell game, with the states playing the role of sucker.  ObamaCare backers could only claim cost control by shifting the costs for the Medicaid expansion to the states, while taking credit for more-or-less universal coverage.  That would mean either higher state taxes, reductions of other state services, or both.  By freeing the states from having to bear those costs, the bill will come due at the federal level instead, and Blahous thinks that will start sinking into the national consciousness soon:

The Supreme Court may have just set in motion of chain of events that could lead to the law’s being found as busting the budget, even under the highly favorable scoring methods used last time around.

I’m not sure that really does us any favors, but at least the reversal on the Medicaid expansion exposes the dishonesty of the “deficit-neutral” argument.

Update: I wrote 200-400% of poverty line, but I meant 100-400%.  I’ve corrected it above.


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