Court Health Decision May Affect Deficit, CBO Leader Says

To all the uncertainty over the future of the U.S. budget add one more factor: the Supreme Court, said Congressional Budget Office Director Doug Elmendorf.

The justices’ decision, expected this month, on whether to strike down all or part of President Barack Obama’s health-care overhaul may have a significant effect on the budget deficit, Elmendorf said today at a meeting with reporters. He said the court might save the government hundreds of billions of dollars, or add to the deficit, though it’s impossible to predict.

“It depends on just what the Supreme Court does,” said Elmendorf, whose agency provides Congress with nonpartisan analysis of the budgetary effects of policy changes. “Of course, the Supreme Court could do different sorts of things and I don’t know what -- we’ve talking about the range of possibilities and there seems to be a quite a wide range.”

Lawmakers already are facing an unusually large number of major tax-and-spending events late this year -- dubbed a fiscal cliff -- that include the expiration of the George W. Bush-era tax cuts and $1.2 trillion in automatic spending cuts scheduled to begin taking effect in January.

If the Supreme Court decides to strike down the health-care law’s requirement that almost all Americans have health insurance by 2014, it could translate to cutting a “few hundred billion dollars” from projected spending, said Elmendorf. That’s because if there no requirement for having health insurance, fewer people will likely sign up for Medicaid, the health-care program for the poor, or for newly created government subsidies to buy private coverage.

Government Subsidies

The savings could be larger if the justices decide to cancel those subsidies along with the insurance mandate. Alternatively, Elmendorf said, if the court decides to throw out the entire health-care law, the deficit would increase. That’s because the provisions expanding coverage are financed with cuts elsewhere in the budget as well as tax increases, which means the projected net effect of the legislation would be to reduce the budget shortfall.

Lawmakers’ inability to resolve their differences over what to do about the fiscal cliff is already hurting the economy, Elmendorf said, estimating it will hold down growth this year by about a half percentage point.

‘Hard to Manage’

“We think it’s an issue now and will be increasingly an issue in the second half of the year,” he said. “It’s very hard to manage an organization that is faced with a potential immediate cutback of the size that would occur for many organizations in government, and would then spill over to people outside the government if these cuts were to take effect.”

That’s been the case in his agency, Elmendorf said, saying officials are unsure about whether to replace workers who leave because it’s impossible to know next year’s budget. “That must play out on a much, much larger scale with more significant enterprises than ours,” he said.

Elmendorf disagreed with complaints from Republicans, including presidential candidate Mitt Romney, that the administration’s health-care law is hurting the economy.

“We don’t think that the health-care law is having a significant impact on the economy today,” he said. The plan likely will reduce the labor force over the next decade by about a half percent, Elmendorf said, mostly because of Americans opting not to work because they are able to get affordable health-care coverage outside of the workplace.

‘Half a Percent’

“Half a percent of the labor force is not a very big share -- that’s the only economic effect that we have tried to estimate,” he said.

Asked what worries him most as CBO director, Elmendorf said lawmakers’ inability to agree on how to reduce the deficit.

He said policymakers “have very different views about the right path” and finding agreement is “made more difficult, I think, by a lack of understanding on the part of many Americans about where their federal dollars go.”

“Our political system needs to come to grips with this fundamental choice about whether we’re going to let taxes rise relative to what we’re used to in the past or cut spending on the big, popular entitlement programs or some combination,” he said.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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