my take on politics and policy

Besides the insurance subsidies that will provide every American with access to health insurance, the Independent Payment Advisory Board (IPAB) is the most important part of the Affordable Care Act. Why is this obscure board, buried in the pages of the health care law, so important? It represents the best chance to save and sustain America’s Medicare system for the long term.

When fully implemented, IPAB will be a panel of 14 health care experts who will be nominated by the President and confirmed by the Senate. They will be charged with making changes to Medicare if costs in that program rise too rapidly. The board will have the authority to make changes to Medicare without the approval of Congress (though Congress can overrule it) if Medicare spending rises above the yearly bar that Congress has set. The changes can be something like lowering payments to hospitals that have high rates of readmission, incentivizing preventive treatments or bundling payments to save money and promote more efficient care. Its important to note that the board can’t raise fees or ration care, but has  significant power to tinker around the edges.

You’re probably thinking: well, that sounds good and all, but why is this board so important? Several reasons:

It can succeed in cutting costs where Congress has failed.

Medicare will be a large contributor to the nation’s debts in the future. Even though Medicare is much more efficient than private insurers at controlling costs, health care costs are still rising at an unsustainable rate in the economy as a whole. This affects Medicare as well. So, when health care costs rise in the private sector, Medicare can’t be too far behind.

Congress has tried and failed to control costs in Medicare. It tried to slap a sustainable growth rate (SGR) on Medicare but that has been permanently delayed by later Congresses. Congress caved to special interests when it made Medicare’s prescription drug benefit and the result is that drugs cost much more here than in other countries (which is why people go to Canada for cheap prescription drugs).

It should be no surprise to anyone that Congress is inept at saying “no” to special interests. The IPAB takes responsibility for saying “no” out of Congress’s hands. As a panel of healthcare experts not responsible for raising campaign contributions or dealing with lobbyists, the IPAB can succeed where Congress has failed. The CBO projects that the IPAB will save the country billions in Medicare spending.

IPAB can make all health care cheaper and more effective

Medicare does  not exist in a vacuum. When costs in the private sector go up (and they have been for years), Medicare’s costs must go up as well. IPAB can help by making both Medicare and our health system as a whole, more effective.

Our system is plagued by inefficiencies, and as a result we have the highest healthcare spending per capita in the world. Its important to note that all our extra spending hasn’t bought us any better healthcare than the rest of the world enjoys. Our life expectancy is 36th in the world (right below Cuba). Clearly there are ways to drastically improve healthcare in the US. How are they going to happen?

Because Medicare occupies such a huge part of the health care market, reforms to that program have the ability to spread throughout the healthcare system. Peter Orszag, Obama’s former budget director has said 

If the board realizes its potential to push Medicare toward paying for better quality care, as opposed to paying for more care, “it could well turn out to be perhaps the most important component of the new legislation,”

For example, if Medicare starts lowering payments to hospitals with high re-admission rates, hospitals will have to improve their treatment methods or else lose a lot of money. That will save all health insurers money, not just Medicare. If bundling payments does save money and improve care, private insurers might start copying Medicare, so that their costs go down as well. If Medicare stops paying for new and expensive procedures that have not been proven to work better than older, cheaper procedures, then private insurers will have the cover to do that as well.

Those are just a few ways that innovation in the large Medicare market can spark innovation through the private sector (where the costs really are located) as well.

There is no good alternative to IPAB

The alternative to controlling costs through the IPAB are, as I understand them, thoroughly underwhelming. Adopting a complete single-payer system in the US would work, but it is unlikely to happen. The other options are to

1. raise taxes until health spending starts slowing, or
2. shift costs.

I’m no fan of simply raising taxes every time health care spending increases and option 2 seems equally terrible. This is the plan proposed by Republicans. They have proposed giving everyone who would traditionally be covered by Medicare a small voucher that they could use to buy insurance on the private market. Since private insurance is much more expensive than Medicare, seniors would be responsible for almost all of their own costs.

Another alternative would be to raise the Medicare age from 65 to 67. This option, as the graph below shows, would save the federal government money, but would actually increase system-wide costs as a whole. 

Neither of the alternatives would not slow the growth in medical costs. They would just be the equivalent of the federal government saying “somebody else should pay for it!” That “somebody else” would be you, me, employers and state governments.Shifting costs is just a budgetary sleight-of-hand that saves the federal government a nickel but charges everyone else a dime.

If implemented correctly, the IPAB can get our growing federal health care budget under control. It also has the potential to reduce costs and improve quality in the private market. Growing health care costs are the greatest future budgetary threat to the US. The IPAB is the only serious, recent effort that has the potential to both improve care and lower costs in our health care system. We sorely need it.