Analysis: Ruling adds hundreds of billions to healthcare law costs

The Supreme Court's decision to let states opt out of the healthcare law's Medicaid expansion will increase costs by hundreds of billions, according to an analysis by a conservative think tank.

Thursday's ruling means that states can refuse to expand Medicaid coverage for millions of low-income people without facing the law's original penalty.

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The American Action Forum (AAF) estimated that states will not only forgo the Medicaid expansion, they'll cut their Medicaid rolls back to the "federally designated minimum" and move everyone onto the law's insurance exchanges. 

AAF chief Douglas Holtz-Eakin blogged Friday that this would force the "federal government (read: taxpayer)" to foot the bill.

"The federal government would save as much as $130 billion in Medicaid in 2014, but it would be on the hook for $230 billion in new insurance subsidies," Holtz-Eakin wrote. "The net bottom line: a $100 billion annual expansion in federal costs."

He added, "It seems safe to say that the [health law] will leave the taxpayer on the hook for an additional $500 billion or so in federal costs over the first 10 years."

Past estimates said Medicaid expansion would provide healthcare access to an additional 17 million poor Americans — those who earn 133 percent or less of the poverty level every year.

But states now have the choice on whether to pursue it, and the decision is laden with political overtones for Republican governors who oppose the Affordable Care Act.

Holtz-Eakin, a former director of the Congressional Budget Office, said the new flexibility provided by the courts on Medicaid is a "clear winner" for states — "covering more individuals and saving budget dollars at the same time."

But, he said, "For the taxpayer this is a nightmare."

The Supreme Court upheld the vast majority of the health law on Thursday in a decision seen as a major win for congressional Democrats and President Obama. The Medicaid portion of the ruling does not interfere with the enactment of most of the law.