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Will health reform ruling help or hurt deficits?

Posted at 7:39 PM, Jun 23, 2012
and last updated 2012-06-23 16:41:22-04

Jeanne Sahadi, CNNMoney

NEW YORK (CNNMoney) – From the start of the debate over the current health reform law in 2009, one of the big questions was its impact on deficits.

When it passed a year later, the nonpartisan Congressional Budget Office estimated that it could reduce deficits modestly in the first 10 years and then much more significantly in the second decade.

How those estimates will change after the Supreme Court rules on the fate of the Affordable Care Act is anyone’s guess.

The court, expected to issue its decision in the next week, could uphold the law in full, overturn it wholesale or repeal specific provisions. Here are the possible fiscal ramifications of each scenario.

Law is upheld: The CBO estimated last year that the federal government would spend about $1 trillion to provide subsidized insurance to low- and middle-income families between 2012 and 2021.

But on balance, because of the law’s many cost-reducing measures and targeted tax increases, deficits would be reduced by $210 billion, the CBO estimated.

Even if the Affordable Care Act is upheld, estimates of how it affects the budget will change.

For one thing, there are likely to be changes in factors that go into assessing the law’s costs and savings, such as new forecasts about overall health care costs and employment.

And lawmakers could change pieces of the law. They’ve already ditched some provisions.

Gone, for instance, is the so-called CLASS Act, a long-term care insurance program that would have helped seniors in need of assistance with daily tasks such as bathing and dressing. The elimination the CLASS Act is estimated to reduce the deficit-reduction potential of health reform by roughly $80 billion in the first decade.

Law is overturned: A decision to overturn the Affordable Care Act very likely would increase deficits modestly, since the law itself was projected to reduce them.

In February 2011, the CBO estimated that a bill to repeal the law would have increased deficits by $210 billion.

But again, a number of factors could alter the estimate. Among them: changes in economic forecasts and health care cost inflation.

And if the law is overturned, the estimated 30 million or so new people who would have been insured under the law would remain among the ranks of the uninsured.

Individual mandate is repealed: One possibility is that the high court strikes down the individual mandate, which requires that everyone buy health insurance or pay a penalty starting in 2014.

A repeal of the mandate alone could reduce deficits by $282 billion over 10 years, the CBO estimated last year.

Without a mandate, fewer people would buy insurance, and therefore the federal government would spend less on the new insurance subsidies intended to help eligible individuals and families pay for their policies.

But the bang for the buck that the government would get for subsidizing coverage would go down too, said Matthew Buettgens, a senior research associate at the Urban Institute.

He estimates that the government would spend about 3% less without a mandate, but far fewer people would get coverage than if the mandate stays.

The CBO last year estimated that 16 million fewer people in 2021 would be insured if the mandate is repealed.

Medicaid expansion is overturned: The law calls for an expansion of eligibility for Medicaid, and it provides additional federal money to states to cover it.

States that choose to participate in Medicaid must accommodate the expansion or potentially risk losing other federal matching funds for the program.

One of the questions before the court is whether such an expansion is unconstitutionally coercive of the states.

If the provision is struck down, it likely would reduce the cost of health reform; the expansion was most recently estimated to cost $931 billion over 11 years. But that would also reduce the number of the insured — the CBO has estimated roughly 17 million people would be covered because of the program’s expansion.

More than one measure is repealed: The question of how the ruling would affect the country’s fiscal outlook gets substantially trickier if the court strikes down more than one provision.

It’s not clear, for instance, what the effects would be if the court kills off the mandate along with two other provisions — so-called guaranteed issue and community rating.

Guaranteed issue means insurers would have to insure everyone, even if they have a pre-existing condition. Community rating means insurers could not charge sick policyholders more than healthy ones, although there are allowances for premiums charged to people of different ages.