How SCOTUS Could Help Congress Save Billions

Politico, By Jonathan Allen –

June 6, 2012: Congress could stumble into a big pile of cash from an unlikely source: the Supreme Court.

The justices will deliver their landmark ruling on the 2010 health care law this month, and the government is in line to reap hundreds of billions of dollars in savings — perhaps more than $1 trillion — if certain parts of it are struck down.

That money could be freed up just in time for a battle over whether automatic cuts to the Pentagon and social programs will kick in, and some members of Congress are already dreaming about the possibilities.

“We’re thinking [about] different options, but there are so many variations of what could happen from the court decision, it’s hard to make any hard plans,” said House Appropriations Committee Chairman Hal Rogers (R-Ky.). But, he added, a windfall “would be a factor” in discussions about whether to keep in place pending Pentagon cuts.

The math is complicated, but the premise is simple. If the court kills just the parts of the law that cost money, while leaving in place new taxes and spending cuts, that would leave more cash on the government’s books. If the whole law is struck down, the deficit would actually go up a bit. And if it’s upheld, there’s no change at all to the budget.

The Congressional Budget Office estimates that eliminating the law’s individual mandate would save $282 billion over 10 years, a figure based on 16 million fewer people signing up for health care through Medicaid, new health exchanges and private insurance.

Bill Hoagland, a vice president at the insurance company Cigna and the former top Senate Republican budget aide, says that number would jump to more than $500 billion through 2022 if the mandate and related insurance market reforms, such as the requirement that insurers provide coverage for people with pre-existing conditions, are struck down. And there’s even more money at stake in the law’s expansion of Medicaid and the Children’s Health Insurance Program, which the court reviewed alongside the individual mandate, during oral arguments in March.

If the court throws them all out but keeps revenues in place, the savings could eclipse $1 trillion.

Hoagland said he can’t remember a court decision that “could have that significant an impact on the baseline that CBO is operating with.”

No one knows what the court will do — it could uphold the law, strike down parts of it or knock down the whole damn thing. If the law is upheld, the budget picture doesn’t change. If it’s struck down in its entirety, deficit projections would most likely go up by $100 billion to $150 billion over 10 years. But it’s the prospect of a partial strike-down that has some folks on Capitol Hill licking their chops.

“Everyone seems to agree, at the 30,000-foot level, it changes the overall debate in a big way,” said a Senate GOP aide.

Specifically, a windfall could provide more wiggle room when the White House and Congress have to untangle a jumble of budget-related policy issues at the end of the year. That mess includes an imperfect storm of politically charged matters such as the implementation of a planned $1.2 trillion sequester — or cut — split between defense and domestic programs and the scheduled expiration of the Bush tax cuts.

The necessary and proper caveats: The savings would be baked into the CBO baseline, meaning they couldn’t be used directly to offset taxes or spending, most of the money is in the back end of the 10-year budget window and the planned cuts to the Pentagon and domestic programs — called a sequester — would be forestalled only by a new agreement between Congress and the White House. But several sources familiar with the budget process said adding hundreds of billion dollars to the ledger could significantly alter a variety of negotiations expected to occur in earnest after the election and before next year’s Inauguration.

It “would change the year-end fiscal landscape dramatically and entirely for the better,” the Senate GOP source said.

Of course, when the court throws its supercharged grenade into the health care system — or quietly puts the pin back in — the decision won’t be based on red ink and black ink. Likewise, most politicians aren’t talking about the budget implications of a case that could rejigger the political landscape. And neither party wants a partial strike-down of the law.

Republicans believe every word should be thrown out, and Democrats hope to see the centerpiece of the Obama agenda left intact. Besides, some decision makers say, they’ll know what the ruling means for the budget long before they have to make judgments about the Bush tax cuts, the sequester and next year’s spending bills.

“With respect to how this affects the budget discussions at the end of the year, I think people will take a little bit of a wait and see,” said Maryland Rep. Chris Van Hollen, the top Democrat on the House Budget Committee.
But many wonks have their eyes on the money.

During oral arguments in March, the justices focused in large part on whether the mandate is unconstitutional. The mandate would force consumers to buy insurance or pay a penalty, and it is among the cost drivers for the government. CBO’s estimate of a $282 billion savings from killing the mandate includes $149 billion less in Medicaid costs for the government, $69 billion less in subsidies for Americans who purchase health care through exchanges created by the law and $80 billion in new tax revenue because fewer companies would offer health plans to their employees.

Jon Gruber, the MIT professor who helped devise Mitt Romney’s Massachusetts health care law and then the federal version, said, “It’s just penny-wise and pound foolish” to eliminate the mandate. “You’re basically saving a little to hurt a lot. You spend three quarters as much to cover half as many people.”

In addition, most experts agree that striking down the mandate but leaving in place insurance industry reforms — like requiring plans to cover people with pre-existing conditions and letting 20-somethings stay on their parents’ insurance — would have disastrous consequences for consumers. The logic: Costs would go up for insurance companies, and the bill would be passed on to consumers.

The court also looked at the constitutionality of the law’s expansion of Medicaid and the Children’s Health Insurance Program, which account for $936 billion in government spending through 2022, according to CBO’s latest projections. Some of that overlaps with the money calculated as stemming from the mandate. If both the mandate and the Medicaid and CHIP expansions are struck down, only the provisions designed to pay for the cost of the program remain in effect.

“You really just have a shell of a program on the spending side at that point,” said Jim Capretta, a fellow at the conservative Ethics and Public Policy Center who was an associate director of the White House’s Office of Management and Budget during President George W. Bush’s first term.
Right now, House GOP leaders say the Supreme Court decision won’t have any effect on budget talks.

“I don’t really think there’s any connection whatsoever,” said Michael Steel, spokesman for House Speaker John Boehner (R-Ohio).

While conservatives and liberals agree that the 10-year effect of a Supreme Court decision striking down the whole law would add to the deficit on paper, they strongly disagree on what it would mean for the long-term budget picture.
Gruber says the savings from the reform law only start to kick in during its first decade, meaning that striking it down would affect the budget adversely in later decades.

Health reform “is something that gets better and better over time,” Gruber said.

Capretta sees it from the exact opposite perspective.

“The spending commitments in this bill are humongous,” he said. “In my judgment, the budget will be far, far better off if the whole law is struck down.”

Source: John & Rusty Report via wordandbrown.com