April 18, 2014

You Can't Repeal IPAB Without a Credible Alternative

Last week two committees in the House of Representatives voted to repeal the Independent Payment Advisory Board (IPAB). This is an alarming attempt to undo a key cost-saving enforcement mechanism without putting anything else in its place.

You may recall that the IPAB was created by the Affordable Care Act (ACA – aka “health care reform”) to reduce the growth in Medicare spending through the use of a spending-target system and a fast-track legislative process. 

The Concord Coalition has long supported the IPAB because it provides a crucial backstop to ensure federal health care savings from the ACA. (See here and here).

The ACA imposed cuts to Medicare, raised some taxes and fees, and created a penalty for people who don’t buy insurance. The legislation also created pilot projects and experiments to determine how to help curb the growth of health care costs. The IPAB was designed to ensure that the Medicare cuts -- or others that would achieve the same level of savings -- will go into effect. The IPAB will also make it less likely that parochial political interests will be able to thwart implementation of whatever new methods are found to control costs.

The advisory board will consist of 15 independent experts, appointed by the president and confirmed by the Senate. If Medicare spending growth exceeds certain targets, the panel will develop recommendations to reduce the per capita rate of growth. The recommendations will be implemented automatically unless new legislation overturns them.

This system is an improvement over the old procedure in which the proposed savings must slowly make their way through the legislative process -- and can make easy targets for special interests.

Since the passage of the health care legislation, estimates by the Congressional Budget Office (CBO)  of how much money the IPAB could save over 10 years have actually gone down. The office recently estimated that repealing IPAB would only add $3.1 billion to the deficit. 

However, this decrease is actually the result of good news. Health care costs have been growing more slowly in recent years, so CBO estimates that the spending targets in the health care legislation are more likely to be met. If they are, the IPAB would not need to issue recommendations.

CBO also points out that over the long term the IPAB is basically a one-sided bet: It will only act to save money. Repeal, therefore, would not reduce health care spending under any circumstances but might instead result in higher spending by removing the most reliable cost-control mechanism in the health care legislation.

Furthermore, Medicare provides open-ended benefits, and the number of beneficiaries will only increase in coming decades. With its spending targets, IPAB is the only legislated constraint on Medicare’s long-term cost growth. It is incumbent on those who push repeal to specify a mechanism they would prefer to hold Medicare spending down and enact that mechanism simultaneously if they remove IPAB.

Two main complaints about the advisory board are that it would usurp congressional authority and result in “rationing.” It is important to note, however, that Congress retains the authority to devise its own cost-saving ideas if it doesn’t like IPAB’s recommendations. And anything that imposes limits can be described as “rationing.”

Certainly the Medicare plan proposed by House Budget Committee Chairman Paul Ryan and favored by many Republicans would impose limits as well, but in a different way. The preferred method is a legitimate issue for debate but unless a credible alternative is enacted, IPAB should remain in place.  

Fiscal and health care policy experts agree that controlling the growth of health care spending will be essential to putting the federal debt on a sustainable path. The IPAB is certainly not a panacea. However, it is one tool among many that offers hope for progress toward a more efficient and cost-effective Medicare program.

p.s. Here is a short video from a year ago describing the IPAB.