Obama Relies On Independent Payment Board To Achieve Health Savings In Deficit Plan

This afternoon, President Barack Obama rejected the Medicare and Medicaid reforms in the GOP budget and laid out an alternative proposal to reduce the deficit by $4 trillion over 12 years. “Here, the difference with the House Republican plan could not be clearer: their plan lowers the government’s health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government’s health care bills by reducing the cost of health care itself,” Obama said.

The new “framework” builds on the delivery and cost containment reforms in the Affordable Care Act and would reduce medical cost growth by getting rid of some of the inefficiencies in the system rather than simply shifting the cost burden to beneficiaries. The plan would strengthen the Independent Payment Advisory Board (IPAB) charged with keeping health costs in check, provide states with greater flexibility to manage Medicaid, reduce costly medical errors and hospitals readmissions and use Medicare’s clout to save more money on prescription drugs. But Obama also pledged to defend the integrity of the Medicare and Medicaid programs and the New Deal philosophy of shared costs and sacrifice:

But let me be absolutely clear: I will preserve these health care programs as a promise we make to each other in this society. I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations.

Obama’s plan builds on the foundation of the Affordable Care Act and incorporates some of the recommendations offered by The National Commission on Fiscal Responsibility and Reform back in December. The administration estimates that the health changes would “save an additional $340 billion by 2021, $480 billion by 2023, and at least an additional $1 trillion in the subsequent decade.”

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At the center of the proposal is a plan to expand IPAB, a 15-person commission tasked with offering Congress a comprehensive proposal for reducing excess growth in Medicare (without rationing care or raising premiums or cost sharing) if costs exceed GDP per capita plus 1 percent. Congress must consider the proposal — essentially changes in payment rates — in full and cannot offer an amend with different reduction goals unless it is agreed to by both chambers of Congress (and 60 Senators.) If Congress fails to adopt a substitute provision, the Department of Health and Human Services must implement the board’s proposal.

In his plan, Obama establishes a more ambitious target of holding Medicare cost growth per beneficiary to GDP per capita plus 0.5 percent beginning in 2018 and gives the board additional powers to determine Medicare payment rates. “There would be some expansion, having a more automatic sequestration so that we don’t have a situation that nothing happens,” a senior administration official explained. The board would still be prohibited from making cuts to hospitals and hospices through 2019 and Congress can still alter IPAB’s recommendations without offsetting the costs. Asked if they would undo some of these restrictions, the senior administration official briefing reporters on the call said, “no, not all of them.”

The IPAB has always been seen as a serious effort at cost control, but Congress’ experience with things like the sustainable growth rate (in which Medicare physicians are shielded from cuts every year) has led some to wonder if the measure will ever be implemented. This is particularly so in the face of baby boom retirement. As far as I can tell, the plan would cap Medicare expenditures at GDP+.5 percent after 2018, which leaves no room for the increase in the number of beneficiaries — a number which is expected to rise from 13 percent of the population today to 22 percent in 2050. Which means, Congress may respond by changing the trigger to avoid making cuts that could have some effect on their constituents.

Aside from the Republican efforts to characterize the IPAB as a rationing board — they’ve already introduced legislation to repeal it — the administration may have a hard time scoring the proposal with the all-important Congressional Budget Office. In March, the organization estimated that “the rate of growth in Medicare spending per beneficiary is projected to remain below the levels at which the IPAB will be required to intervene to reduce Medicare spending.” The board never triggers and so no cuts are made.