The editor of Foreign Affairs talks with the former director of the White House's Office of Management and Budget Peter Orszag and New York University Law Professor Barry Friedman about the Supreme Court's decision on the Affordable Care Act. This discussion took place on Monday, July 2, 2012.

OPERATOR:  Excuse me, everyone.  We now have our speakers in conference.  Please be aware that each of your lines is in a listen-only mode.  At the conclusion of the presentation, we will open the floor for questions.  At that time, instructions will be given if you'd like to ask a question.

I would now like to turn the conference over to Gideon Rose.

GIDEON ROSE:  Hi, everybody.  Gideon Rose here, editor of Foreign Affairs, and welcome to another Foreign Affairs conference call.  We've got some great authors today talking about the recent health care decision.

So we're here with Peter Orszag, who is currently the vice chairman of global banking at Citigroup and a columnist with Bloomberg View.  He's also an adjunct senior fellow for the councils.  He was the director of the OMB and, perhaps most relevant for this, the author of a brilliant article last summer for FA called "How Health Care Can Save or Sink America," about the Affordable Care Act and the reasons for it and its consequences.

We also have with us Barry Friedman, who is the Jacob Fuchsberg Professor of Law at the New York University School of Law, the author of "The Will of the People:  How Public Opinion Has Influenced the Supreme Court and Shaped the Meaning of the Constitution," and one of the major experts on the court and what drives its decisions.  

So without further ado, let's get right to them.  Peter, why don't you start out by just very briefly recapping what the law did and what, if anything, the Supreme Court has done to the law.

PETER ORSZAG:  Sure.  Well, the law had really two big components to it, at least in structure.  The first was to significantly expand coverage to reduce the ranks of uninsured Americans.  We now have new evidence from a randomized experiment in Oregon showing that having access to insurance does improve health outcomes.  There -- I don't think there should have been much question about that, but it's now proven through a randomized trial.

But it -- but that same trial also shows that adding coverage increases cost.  In other words, the thought that uninsured people go to the emergency room and that it would actually be cheaper just to provide them insurance is not true.  As people gain access to insurance, they consume more health care, and that puts upward pressure on costs.  

So the second component of the bill was an attempt to not only offset, but at least to some degree overcome that additional cost pressure and orient the system more towards value and away from just intensity; that is, better care rather than just more care.  And many -- I won't go into the details of all the provisions, unless folks are interested, but many of those are delineated in the Foreign Affairs article that Gideon already mentioned.

I would just note on that latter topic that over the past two to there years, and indeed even since the foreign Affairs article has appeared, there's been accumulating evidence of a very substantial deceleration in health care costs.  And there's no doubt that economic weakness is one of the causes, and likely the dominant cause, but I think the question is whether it's the only cause.  And I am increasingly of the view that it's not the only cause and that there are structural changes, partly prodded by the directionally -- the Affordable Care Act provisions and partly driven by other forces.  

But just as an example, I was on a panel yesterday with the head of Brigham and Women's Hospital in Massachusetts, a major hospital.  For their internal planning purposes they are now planning on, within three years, all of the money that they are paid being not fee for service; that is, not paid based on how much they do, but rather in the form of bundle payments, accountable care organizations or some other risk-related payment in which the hospital is at risk.  That is a dramatic change.  And that is happening not only at Brigham and Women's but at hospitals across the country.  And that, I think, is one of the forces that is putting downward pressure on costs -- cost growth over the past few years.

The significance of the Supreme Court decision from that latter perspective is simply that it avoided throwing a monkey wrench in this process of reoriented-towards-value that is occurring out there in the marketplace, again partly because of the Affordable Care Act and partly not.  But if the law had been found -- or the mandate had been found to be unconstitutional, and more importantly if severability had not been part of the decision -- in other words, if the whole law were struck down -- that would have caused a significant impediment to this progress.

Now, what about the coverage part?  And there the court's decision will have some impact, and it will vary from state to state.  The reason the court's decision will have some impact is that while it upheld the mandate, which is crucial to the efficient operation of the exchanges that are created under the law, as everyone knows there was -- there was a change in the way the Medicaid component of the law will work.

And the reason that's substantial is that out of the roughly 30 million additional people who will be covered because of the law, about half -- a little over half are covered through Medicaid.  So this is a very substantial part of the additional coverage.  What the court said was that you can -- there are additional people who are supposed to be covered under Medicaid as part of this legislation; you cannot make the conditions so punitive on states that you're effectively forcing them to cover the additional people.  In other words, they can forgo the additional federal financing for those additional people, but you cannot then take away the base funding for Medicaid in addition.  

So then the question becomes, how much of an impact will that have?  We're already seeing statements from several states -- Florida, Iowa, South Carolina, Missouri, Wisconsin, Kansas, for example; Louisiana -- the governors saying we are not going to participate.  I think one question is how this plays out over time because -- don't forget -- under the current system in which the match rate, the federal subsidy is a little bit -- on average, a little bit under 60 percent, about 60 percent of the total costs do not come from federal required people for federally required -- or federally required beneficiaries for federally required benefits.  Sixty percent of the costs come from optional beneficiaries that states have added at their option or for optional benefits that states have added onto the core federal requirements.  And they have done that over time in response to a subsidy rate, again, that on average is a little bit below 60 percent.  

So the new beneficiaries under the Affordable Care Act, for the first few years, have a 100 percent subsidy rate, and even after that, eventually, have a 90 percent subsidy rate.  It's a very deep subsidy, and I suspect, without having a perfect crystal ball obviously, that over time, more and more states are going to find that a 90 percent subsidy rate is going to be very difficult to resist for the same reason that the much lower subsidy rate on existing optional Medicaid beneficiaries and benefits has also over time been somewhat difficult to resist.  

ROSE:  Thank you.

Barry, an interesting decision.  You're an expert, among other things, in how the court is influenced by public opinion and perceptions of it and so forth.  Tell us what the decision was -- what was interesting about the decision to you and why did it come out the way that it did.

FRIEDMAN:  Well, you know, sometimes when there's a big buildup to something like this, then you get a letdown on the other end.  But I have to say that the decision coming down and what it had to say was anything but a letdown either in terms sort of court-watching drama or what it did to the law, and both of them are significant parts of the story in this case.  

In terms of court-watching drama, though Peter apparently was one of the very few who called it the way that it came down, I and most people, I think, were of a school, even after the oral argument, which suggested that there was a lot of skepticism on the court, to thinking that maybe they're 5-4 strike down the mandate or 6-3 uphold it, bringing along the chief justice and Justice Kennedy.  But what we got, obviously, was just the chief justice joining the court's liberals, and that was a surprise right away.  

I'm sure a lot of people have seen -- and if they haven't they'll want to look -- but Jan Crawford has a story now that confirms apparently, based on a couple of leaks from the court itself, which is extremely unprecedented and I think unfortunate, what many people had been speculating from reading the opinion anyway.  I certainly was one of them; I doubted this, and then the more I read, the more I thought it had to be true, which is the chief -- looks like he changed his vote somewhere toward the end, originally being a vote to strike down the mandate and assigning the opinion to himself to write that decision; and then, switching over to the other side, and leaving the -- what we -- the joint dissent, the opinion authored by the four conservative justices, where it stands.  So that was a surprise in its own way.  

You know, why did it come down this way?  Well, there's lots of speculation and, of course, we're not ever going to know what was in the mind of John Roberts unless he decides to tell us.  But there are probably a couple of factors that had bearing.  One of them was a concern, in light of sort of the news reports and buzz going around, that a decision striking down the mandate would be really bad news for the court.  And he has shown, throughout his tenure, that he has a great concern for the institutional integrity of the court.  And the other, which you can certainly see hints of in the opinion -- and again, Jan Crawford suggests was the case -- which was that he was willing to strike down the mandate, but -- thinking it should be severed from other provisions of the act, and the four conservative justices wanted to strike down the whole thing.  So those might well have been the tension points in the decision.  

We get three, I think -- to sum up very briefly, and surely willing to answer questions about all this -- but three developments along three important areas of federalism law.  

And I have to note some irony there, because this, at the beginning, was never a really a case about federalism.  I think it was a case about liberty; it was a case about sort of the tea party movement and people on the right feeling that the government shouldn't be forcing them to buy something they didn't want to buy.  But as we all know, if we have cars, we have to buy insurance that we don't necessarily want.  But a liberty claim wouldn't have gone anywhere on the court, so it got framed as a federalism claim.  And then we got a decision that I think has, you know, pretty important federalism rulings.  

So the one everybody was watching was the one about the Commerce Clause, about whether Congress had the power to impose the mandate as a regulation.  And the court says no.  I think the court says no in the face of long-standing precedent that would have given Congress that power.  Even the dissenters seemed to acknowledge that this was new turf, but they bought into the this idea that Congress can regulate activity, but not inactivity.  

That's a very new argument.  It sounds of the kind of formalism of the pre-New Deal era.  But they bought it.  And we don't have five votes for that, incidentally, because the dissenters didn't join the chief's opinion in this regard, but wrote their own, but they basically all say the same thing.  I don't think that matters very much because we've gone a couple hundred years without Congress having to regulate it precisely that way.  And so even though that's where a lot of the drama has been focused, I think in the long run, that's going to make very little difference.  

The second thing that the chief justice said, was he said, you know, the right way to conceive of this thing however is as a tax, not as a penalty.  And there was a lot of disagreement on the court about whether that was possible to read the statute that way, or true, but that's how he characterized it.  And then he said Congress has extremely broad taxing power; it need only tax for the general welfare and spend for the general welfare.  He's right.  That has always been -- you know, Congress' power has always been exceedingly broad with regard to taxation.  

Yet I can't help but note an irony, which is that he blessed Congress taxing inactivity rather than activity, and so Congress can't order you to buy broccoli, but it can tax you if you don't.  And I actually -- even though I don't think that necessarily broke a lot of new legal ground -- you know, maybe a little -- I think in the real world, a Congress that's always looking for something else to tax -- we might see that one actually coming back to us in some fashion.

And then finally -- and you know, Peter focused on some of the significance of this in the real world, but the Medicaid ruling goes to what in law we think of as the question of conditions on spending grants.  So Congress sucks in tax dollars and hands them back out to the states and it attaches conditions on how to spend the money.  But sometimes those conditions relate only ephemerally on how to spend the money, the classic case being where Congress said you can keep, you know, all of your highway funds if you raise your drinking age.  There's some connection, but it's loose there.

And Congress -- the court has, despite some language, always been extremely deferential to Congress on attaching those conditions.  And here the court said no; the conditions went too far.  It's a little hard to read the opinion and know exactly what it was about the condition was determinative.  It could be because old Medicaid money was being used as a lever for taking on the new beneficiaries.  It could be because the sheer magnitude of the amount of money.

I suspect on that issue -- on that legal issue about attaching conditions to spending grants, we're actually going to see -- I would not be surprised to see a bunch of litigation filed over the next couple of years on conditions.  And we'll see, you know, as we have with other federalism rulings, whether it has any legs or whether the court -- you know, it becomes a just-for-this-case ruling.  

ROSE:  OK, So let me follow up with a question for you, Barry.  You know, this wasn't supposed to be a tough call on the constitutionality, if you read the mainstream conventional legal community on this.  And then they -- everyone was shocked when it seemed like it was going to be overturned.  And even when it was upheld, it was -- the mandate was upheld on a ground that almost nobody predicted, while the Commerce Clause stuff was invoked.  Then it seems like, from what we hear, that Robert seemed to have changed his mind and is now being praised for his leadership, precisely as a kind of political being, by not wanting to bring the court into disrepute even if he might have believed the actual other kind of arguments.  

My question to you is -- you follow these issues.  Should we think of the court as essentially a political institution like anything else, or is there some kind of inherent logical internal consistency to their decisions that are separate from the political preferences and ideological preferences of the justices at any given moment?

FRIEDMAN:  So Gideon, I hope you're going to forgive my promoting something appearing in another publication -- you know I'm writing something long for you on this -- but Dahlia Lithwick and I are writing on exactly that question for Slate today.

And you know, I've always been of the view that this whole law/politics distinction when it comes to the court is silly at a certain level, for two reasons, one of which is particularly apt to this ruling.  First, by the time a case gets up to the high court, you know, the question's a hard one in both directions, or it wouldn't have gotten there in the first place.  And whatever you mean by law at that level, it's really difficult to believe that it doesn't involve ideology of some sort.  I mean, that's what law is based on, fundamentally.   There were deep issues in this case about trust of government, about federalism, about liberty and also about consequences.  I mean, you don't just -- don't decide cases at that level and do it with blinders on about what's going to happen down the road, either to the court or the country.

And so I think the decision is -- you know, that distinction between law and politics is just too easy to draw, though we all draw it.  I draw it all the time in class, but then I correct myself.  

The other part of it that's really fascinating here is, because you correctly note that the betting, you know, among everybody -- you know, when I spoke to conservatives, they, because I wrote an amicus brief in this case, they'd say, look, I'm not going to sign on, but I think the thing's going to be upheld;' it's an easy case -- is, you know, Jack Balkin, a professor at Yale, has this description of how arguments go from begin off the wall to on the wall, which is kind of what happened with this whole idea of consuming broccoli and activity and inactivity.  And we saw that exactly during the New Deal, where the country just shifted in its view about what the scope of Congress' commerce power was by the time the Supreme Court got down striking down New Deal measures started blessing them.  

And so to that extent, the law/politics filter is permeable as well because ideas from the popular mind or the popular culture eventually wind their way into law, and though we might debate how quickly that should happen and under what circumstances, I think it would be wrong again to think that that isn't what does happen and what should.

ROSE:  OK.  You know, we have a lot of people on, a lot of very smart people with a lot of interesting questions.  Let me stop taking up time and we'll go right to them.  

So, Operator, let's bring our audience in here.

OPERATOR:  Thank you.  At this time we will open the floor for questions.  (Gives queuing instructions.)

And we are holding for questions.  (Pause.)  Thank you.  Our first question comes from Garrett Mitchell from The Mitchell Report.

QUESTIONER:  Thanks very much for doing this.  Two questions quickly:  One is, the extent that it might be, if not knowable, at least surmise, who would gain from -- who had the most to gain from having the so-called Roberts flip-flop or change of vote known publicly?  Do we think it's a member of the court?  Do we think it's a member of the court who didn't like the fact that the justice switched?  Or are we simply not in a position to know?

And the second is, I'm reminded of the -- given the enormity of this legislation itself -- I mean, the physical size of the legislation and the tasks that outlines it, it reminds me just a touch of the story that surfaces from the -- from the ExComm meetings on the Cuban missile crisis when the decision to do a blockade was finally made, and at that point Robert Kennedy asked the others sitting around the table, essentially, who here knows how to do one?  And even the chief of naval operations couldn't answer that question.

So given that we now have the sort of go-ahead, Peter, to the extent that it's, again, knowable, how do you see this thing sort of unfolding and what comes next and, you know, who takes the lead, et cetera, et cetera?

ORSZAG:  Why don't I -- I'll answer that first and then defer on the other question.

Look, there are several things that are going to happen, and a lot will depend on what happens in November.  First, even if the president is re-elected -- and then it really doesn't matter what happens in the Congress -- and therefore the law is going to be put into effect.

One of the key questions which I tried to touch on briefly is, what exactly happened to the Medicaid component on enrollment?  Because we already have a growing number of statements from governors who are opposed to participating.  And their nonparticipation is much more significant with regard to Medicaid than with regard to the exchanges, because there is a federal backstop on providing the exchange if a state doesn't do so, much more difficult for the Medicaid population.  And again, that's important because that's about half of the additional coverage under the act.

And as I mentioned, I think maybe over time, eventually a 90-percent subsidy rate is going to be difficult to resist for most states, but in the meanwhile there may well be significant caps that open up, which would be problematic.

But look, the bigger story is what happens in November.  And if Mr. Romney is elected and if the Senate turns Republican -- and both of those will need to happen for this scenario that I'm about to describe -- what that opens up is the possibility of using reconciliation to repeal significant components of the Affordable Care Act.  And in particular what that will mean is sometime in January of -- well, in the spring, adopting a budget resolution that includes reconciliation instructions in it.  The reason that's important is that it allows things to be done with only 51 votes in the Senate.  And so if you've got 52 or 53 votes or whatever, that's crucial.

The difficulty in using reconciliation to repeal substantial parts of the Affordable Care Act is that -- well, twofold.  One is that you have to use it for deficit reduction, and since the law is scored by the Congressional Budget Office as reducing the deficit, repealing it in its entirety would increase the deficit, and that requires some other form of offset.  That's not the biggest challenge.  The bigger challenge is that all the provisions that you're running through reconciliation are supposed to be budget related, and that may prove challenging.

So we're really down to a scenario in which it will matter in terms of whether the trifecta of the White House, the House and the Senate are all controlled by one party.  And as long as that is not the case and there's a mixture or some form of divided government, I think the vast bulk of the other provisions will stand, with perhaps some of the least popular provisions coming under kind of targeted pressure, but the bulk of it will persist as long as there's not the kind of trifecta that I mentioned in the November elections.

And in the meanwhile -- by the way, I should just highlight again -- the most interesting activity is occurring out in the field, where the dividing line between payers and providers -- that is, between hospital systems and other providers and insurance companies -- is eroding.  As you move away from fee-for-service payment, if you're in a structure in which you're at risk for -- if you have a bundled payment, for example, you have a fixed payment for a patient with a certain condition, and that patient then requires additional care, you're at risk for that additional cost, and the distinction between you and the insurance company at that point gets a little bit nebulous.  And so that trend is happening.

And in addition to that, you have a very significant trend towards increased use of information technology, which by itself may not be sufficient to change the value proposition, but if used to promote clinical decision support software and to benchmark physicians and as part of a management tool if done in conjunction with other changes, it can be important.  And those things are happening, I think, more rapidly than many people in Washington realize.

ROSE:  And Barry, the leak?

FRIEDMAN:  Yes, a word on that, but first I'll just, you know, hand out either a rhetorical question or a question for Peter that's interesting based on his remarks, which is, I've always wondered how much the talk about repealing is sincere or is cheap talk when it's difficult to make it happen, because as I read the polls going into this, even though it showed that the mandate was unpopular, I thought a lot of the press was misreading what they were seeing because a lot of the provisions of the law themselves are popular.  And if the court had struck the mandate alone -- or had struck it all, then they would have run into that unpopularity.

In terms of the leak, you know, Jan Crawford's, again, great story suggests that there were two sources from within the court.  And whether one was a justice or not is difficult to say.  I went through some very careful parsing of her story because there's one sentence that seems to hint at it, but it is unclear.  It's hard to believe, though not impossible, that a leak of the nature that we had would have happened without at least a justice's sanction, but it's impossible to know.  In terms of why someone would do it, you know, I just have to say how regrettable I find it.

And you know, having studied a couple hundred years of the court's history, it's been a remarkably leak-proof institution, and I think it's because the stakes are high there, and everybody knows that part of those stakes is the court's own integrity in being, you know not politicized from within.  I would have to guess that there was a leak because there was pique at what the chief justice had done and some thought to undermine him.  And -- but that's, you know, ultimately self-defeating because if you're on the conservative side of the court and you want to get anything done, he's a -- he's a critical vote.  Justice Scalia famously alienated Justice O'Connor by heckling her, basically, along the way.  And though I don't think that's likely to happen with the chief justice, it's an odd strategy.

ROSE:  Do you think the people inside the court will know who did it?

FRIEDMAN:  Oh, you know, it's hard to know.  I mean, I think some people might now.  And in this world, just as there's this leak, we ultimately seem to often know everything.  But -- and again, Peter and I were talking before the call began about how unfortunate that is in terms of long-term leadership.  But it depends on where the leak came from.

QUESTIONER:  OK.  Thank you.

OPERATOR:  Thank you.  (Gives queuing instructions.)  Our next question comes from Kyle Cheney from POLITICO.

QUESTIONER:  Hi.  Peter, a quick question for you.  Given the scenario you described of a potential Romney win in November and a GOP takeover of the Senate, I wonder if you see states more supportive of implementing the Affordable Care Act more likely to potentially pass their own measures as sort of a hedge against the possible repeal in that scenario, something like their own individual mandate like Massachusetts has or anything along that line.

ORSZAG:  Well, I think that's possible, although I think in that scenario of the trifecta, the bigger thing that states are going to be focused on is I suspect that -- and this is speculative; I need to immediately highlight that -- that if you think about what else will be put through the reconciliation process, it strikes me that the block granting of Medicaid is among the more likely targets, because you're basically -- if you look at the Ryan budget or some of the things that the Romney campaign has embraced, it's tax reform -- you're going to do something big that's positive.  You're not just going to try to repeal something; you've got to have some other -- (chuckles) -- change as part of your big fiscal package.

And so it's either tax reform, premium support in Medicare or block granting of Medicaid.  And I suspect among those three that block granting of Medicaid may ultimately -- even though I think it's hugely problematic, may ultimately prove to be the most attractive to the people who are trying to figure out what to do.  And in that scenario, state legislatures and governors are going to have a lot more -- they're going to have a lot on their plate in terms of figuring out what to do, because in that scenario, I suspect further what will happen is exactly what is typical in these sorts of things, where you up the payments to states for a year or two and then flatline them thereafter, so it looks like the federal government is saving tons of money.  For state governments that are facing an aggregate deficit next fiscal year of $50 billion combined, a little bit of up-front extra money is going to look very attractive, even if it's at the cost of bearing a lot more risk and having a more dire out-year set of projections.

QUESTIONER:  All right.  Thank you.

OPERATOR:  Thank you.  (Gives queuing instructions.)  Our next question comes from Alexis Simendinger from RealClearPolitics.

QUESTIONER:  Hi, gentlemen.  Peter, last week in the White House's discussions with reporters, someone you used to work with was offering very blanket assurances to reporters that the Medicaid decision portion of the Supreme Court ruling would not have a large impact on the coverage.  And her assurance was related to, I guess, the feeling that the states would take up -- take the money, that they would feel compelled to do that.  My question at the time last week was if that were the case, why was the coercion portion put into the law?  And your former colleague could not recall how that ended up getting into the ACA.  And I'm just curious if you can describe or recall why it was considered important in the first place if the administration is trying to offer blanket reassurances that the states will eventually take the money.

ORSZAG:  I don't remember the -- I guess I have a couple comments.  I don't remember the exact dynamic around that particular provision.

But two things strike me as perhaps relevant. The first is in a situation in which the initial subsidy is a hundred percent -- and even in the out-years or even subsequently, it's 90 percent -- it doesn't seem that onerous to basically expect or even require all states to participate.  And so undoubtedly, part of the -- and again, without remembering exact details of the dynamic around that particular provision -- if asked, you know, from a policy perspective, it wouldn't strike me as a sort of first-tier issue whether you had a 90 percent subsidy with a kind of more punitive hammer attached to it or just a 90 percent subsidy because that subsidy rate is so large that it should induce significant participation. 

Now, that having been said, and the reason that I highlighted a kind of time dimension to this, over time that may become very difficult to resist.  But in the near term, we're already getting indications that there are a whole bunch of states that are going to say, no thank you. 

And then the question becomes -- and ironically, of course, they're saying no thank you during the -- you know, for the time period in which the subsidy rate is a hundred percent.  The question then becomes how significant that kind of short-term problem is and exactly how much, over the longer term, the 90 percent subsidy rate will induce states to play.   

If you just go state by state out of the roughly 17 million people who were supposed to be -- who were projected to be covered under Medicaid as part of the ACA -- and you know, Florida is a little over a million; Texas -- I mean, you can get numbers -- you can easily get up to -- and you know, this is rough, I haven't done the exact calculations, but I wouldn't be surprised to see numbers like a third of the people who were projected to be covered under Medicaid being endangered by, you know, not taking up the additional coverage. 

The Congressional Budget Office has indicated that they will put out a revised set of estimates on the covered side too.  And so I think the best thing to do would be to wait to see what they have to say before reaching any judgments.  But I don't have a direct answer to your question because I don't remember exactly why that provision was written that way. 

QUESTIONER:  And let me ask you one follow-up related to this. 

ROSE:  We have -- I'm sorry, we got a lot of people on the line so I have to trim the follow-ups.  Sorry about that. 

OPERATOR:  Thank you.  Our next question comes from Jonathan Nicholson from BNA. 

QUESTIONER:  Hey, Peter.  Glad to see you doing this.  And actually, this may be close to what Alexis was wanting to ask as a follow-up.  I don't know.  (Chuckles.)  But A, I guess, how crucial is this CBO rescore, and how much are they going to be guessing in the dark about this question of which states or how many people will fall onto -- will fall out of Medicaid and into the exchanges and therefore cost more?  

And B, is there any good reliable sort of rule of thumb about what that transition means in terms of costs?  Because some people are saying 400 (billion dollars) to 500 billion (dollars) over 10 years; some people are saying -- you know, maybe -- I think the Blahous was out today or the other day saying 50 (billion dollars) to 90 billion (dollars) for every 1 million-person reduction in Medicaid recipients.  

So I guess those are my two questions.  Is this -- A, is there good way for CBO to come up with an estimate on this?  How important is it?   And then B, what's -- is there a good rule of thumb that we should keep in mind for what the -- what the cost would be for the change?

ORSZAG:  Sure.  So first, CBO has a very difficult analytical question before it because it -- and it tends to not like to have to make  political economy judgements, but in this case, it's almost inevitable because you'd need to figure out whether states will take up the offer.  If you did a purely economic analysis, again, given how deep the subsidy rate is, I think you would get -- you would be drawn to the conclusion that there wouldn't be that much impact from what the court has done on Medicaid enrollment.  

But then again, we are -- they -- I think it would be implausible for CBO to ignore the statements that have already been made saying that certain states won't participate.  That would -- that would not tend to be insightful or the right way to proceed.  So they're going to have to guess not only with regard, to if states haven't said anything clearly, what those sort of silent states will do, but then in addition, how it will play out over time, because it may well turn out that the dynamic perspective is a little bit different than the static perspective.

Now, on the cost -- (inaudible) -- it's sort of the rough rule of thumb.  I'm going to -- such rules of thumb exist.  I'm going to not, however, embrace any of them right now, because it will depend on the mix.  And that mix -- or on the specific people who drop out.  And that varies significantly from state to state, and so it ties back to the first part of the question.  You can't really do an easy rule of thumb without knowing which states are not participating.

ROSE:  Thank you.  

OPERATOR:  Thank you.  Our next question comes from Stephanie Kirchgaessner from the Financial Times.  

QUESTIONER:  Hi.  Thanks for doing this call.  Can you hear me OK?

ROSE:  Yup.

QUESTIONER:  OK, great.  I just had a question about the Republican response to the pre-existing conditions regulations have long been these high-risk pool set up in states -- individual states.  But you know, we heard that again yesterday from -- kind of across the board.  And I was wondering what the response was to high-risk pools and what kind of alternative that would be to the Affordable Care Act's provisions on pre-existing medical conditions.

ORSZAG:  I guess I'll take that.  The history of experience with high-risk pools, at least as they have been undertaken to date, is not overwhelmingly positive.  They've tended to be very small-scale and not actually work that well, which is not surprising given the selection effect that is inherent in setting them up.  If -- by definition, if you're in a high-risk pool, you're high-risk.  And even within that pool, the highest-risk people are the most likely to take it up.  

And so you just get back to a, you know, generic feature of an insurance market where unless you have some sort of protection against the adverse selection spirals and selection effects, it gets very difficult to operate something efficiently.  It's not to say in the absence of other protections that high-risk pools can't do anything; they can.  But to sort of put all of your chips down on that, I think, is inconsistent with both economic theory and with the experience to date where they've been tried.

OPERATOR:  Thank you.  (Gives queueing instructions.)  Our next question comes from Pao Zhang (sp) from Kagzan Media (sp).

QUESTIONER:  Thanks.  My question's for Barry.  Can you talk about, in terms of the Roberts court, what is your view on the court since he took office in 2006?  And this time's decision actually change your -- some of your perceptions on the court?  Thank you.

FRIEDMAN:  It's a good question.  And I really think that more than many times in history, if you look at the coverage of the Roberts court, it's confusing, because you rarely see such divergence in terms of what the court is actually doing.  Certainly the Citizens United decision involving campaign finance and corporate involvement in campaign finance was a defining moment for the court.  I've taken the position that it -- that they didn't expect it to be quite as defining a moment.  

There was a lot of buzz for a while about this being a court that very much favored big business.  And Adam Liptak had a great -- a great coverage of that.  But the truth of the matter is, those decisions that seem to favor business were often by broader majorities than the traditional conservative-liberal split.  And as time went on, that clear set of wins has become much more muddied.  

And so, you know, I think when you take all of the -- out of all of the -- you know, fraught nature of this out of the question, what you see is a court that is not nearly as conservative as one might have guessed.  Surely it's conservative.  Surely Roberts is conservative.  And there are, you know, four and a half to five very conservative votes on the court.  I think it's right to score this as a court that is one of the most conservative in history, but the fact is that Roberts and sometimes, when not Roberts, Kennedy care about the institutional integrity of the court, and that has been a moderating influence.  Roberts has really wanted to reach across the aisle.  We've seen a fair number of decisions with odd alliances.  

And so I think it's a court that the left saw as extremely conservative; the right, you know, probably wished it was more conservative than it was, but was hoping that was coming down the pike.  You're going to see a lot of disappointment now on the right.  But there are big -- you know, big-ticket items coming down the court in the next year or two.  And so it's too early to tell.

QUESTIONER:  Thank you.

OPERATOR:  Thank you.  Our next question comes from Peter Zentai (ph) from Club Radio, Budapest.

QUESTIONER:  Good afternoon from Budapest.  Mr. Orszag has stated in an article in early June that Europe stands on the brink of an economic disaster and it could easily trigger another outright recession in America.  First question, do you still think that way?  And secondly, if a recession would take place, how far that can influence the health care problematic in the U.S.?

ORSZAG:  Well, I don't think this is the call to go into the full details on the European situation, but I will say that I think the probability of a miscalculation remains very high and that recent developments that are pointing towards deposit insurance and some way of injecting capital into the banking system without going through the sovereign are helpful but are not -- are only part of the full panoply of responses that will be necessary to survive the next six months to two years.

More relevant for the domestic audience will be -- assume that the problem does get away from the Europeans, or even if it just remains kind of as-is for six months and kind of casts a pale (sic) over the U.S. economy -- we had a very poor reading, for example, on manufacturing activity today in the United States, which is, I think, being influenced by world events -- how does that change the fiscal cliff dynamic and the next steps on health care?  

And I think one big question will be, if the situation in the United States gets bad enough that both the unemployment rate is starting to rise significantly rather than remain kind of steady, it not only has, obviously, political consequences, but it also, I think, has legislative consequences in terms of the willingness to delay the fiscal cliff for some period of time.  

In addition to that, there's a small probability that the debt limit, which is currently expected to be hit towards the end of this year and then become binding sometime in the spring of 2013, if the economy weakens sufficiently, those dates could be accelerated.  And if there's any scenario in which the debt limit becomes truly binding before December 31st, that completely changes the entire legislative dynamic because it then requires a deal to be done before the end of this calendar year, and that then runs into the difficulty of seeing how we could possibly get a deal done over some intractable differences, especially around the tax cuts.

ROSE:  OK, guys.  We're coming up on the witching hour.  Let me just take -- make one last intervention.  You know, does this decision mean that the story is over or does it just open up new arenas for fighting?  Where are we in this whole story; the beginning, the middle, the end, what?  And with that and any closing comments you might have.

FRIEDMAN:  Why don't I jump in and let Peter have the last word, only because, you know, I have a mantra about this, which is that we often focus on Supreme Court decisions, you know, quite rightly in terms of their news content, in terms of exactly what the court's just done, and then how that resolves a pending controversy; but if history teaches any lesson, it's that most often what's significant about what the court does happens, you know, far after the fact.  I mean, just to cite one example, Roe versus Wade, which was a really big deal in terms of a woman's right to choose to have an abortions, transformed American politics.  

Now, my guess is -- and Peter, I think, actually would have interesting insight here -- is my guess, this is not the kind of decision that does that.  It probably plays into existing American politics.  But as  much as some of us might even be weary of this story, and though the story's going to shift in terms of its focus away from this particular litigation to a broader controversy, I think depending upon how you define the story, we're in the middle of it.

ROSE:  OK.  And Peter, last word?

ORSZAG:  Yeah, I would say this is by no means the final chapter.  This is just -- it may be Chapter 2 or Chapter 3 in a multi-chapter book.  And I would agree most of -- it's going to be very interesting -- most of the important developments in health care over the next decade are now allowed to proceed, but exactly how they play out is unclear.  And I think we will see some legislative changes and policy changes, and most importantly, we're going to see in-the-field adaptation to a new set of rules, much of which is already happening, and I think the bottom line of which will be a much better health care system a decade from now than the one we have today.

ROSE:  Thank you, Barry Friedman.

Thank you, Peter Orszag.

Thank you, all of our participants on the call.

And until next time, Gideon Rose with Foreign Affairs.  Thanks.

OPERATOR:  Thank you.  This does conclude our teleconference for the day.  You may now disconnect.

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