Magazine | November 13, 2017, Issue

Cutting Medicare the Wrong Way

Obamacare’s unelected board cannot overcome the obstacles to reform

The long-promised effort to repeal and replace Obamacare is stalled, but there is still work on health care that the Republican Congress should do. At the top of the list should be the elimination of the Independent Payment Advisory Board (IPAB).

IPAB — enacted as part of the Affordable Care Act (ACA) in 2010 — is perhaps most famous for being called a “death panel” by Sarah Palin (who had previously applied the claim to a different and eventually discarded part of the Obamacare proposal). This was a cheap shot by the former Alaska governor, but IPAB was indeed designed to be a tough-as-nails, technocratic approach to controlling Medicare costs.

The nonpartisan 15-member board, which has not yet been constituted, is to be made up of experts from the medical-services industry and related fields. Its job is to recommend changes to Medicare’s reimbursement rates — the rates it pays medical providers for the services they provide — whenever the program’s growth exceeds a certain target. IPAB proposals are then fast-tracked through Congress under special rules: Debate is statutorily limited, and Congress must either enact proposals of its own that achieve identical savings or waive the recommendations, the latter of which, also according to the Obamacare statute, requires a three-fifths majority in the Senate. If Congress does nothing, IPAB’s recommendations go into effect automatically.

To date, the Centers for Medicare and Medicaid Services has not projected spending growth large enough to trigger an IPAB recommendation. Neither Barack Obama nor Donald Trump has nominated any members to the board. Congressional Republicans have slashed its funding to the bone. Most of the major players in the medical-services industry, including the American Medical Association and the American Hospital Association, have called for its permanent elimination. And a bipartisan coalition in the House has cosponsored legislation to repeal the board.

A closer look at the politics of IPAB shows that it was constructed on faulty premises and illustrates why public buy-in will be necessary for lasting reforms of Medicare.

The main assumption of IPAB is that congressional politics has become an obstacle to good governance. In a 2011 essay for The New Republic, Peter Orszag — a former director of Obama’s Office of Management and Budget — argued that the way to solve the “gridlock of our political institutions” is to make them “a bit less democratic.” Orszag trumpeted stabilizing policies such as unemployment insurance, which automatically adjust as economic conditions do. He also touted the potential of nonpartisan commissions run by experts, such as IPAB.

The model of success, per Orszag, is the Base Realignment and Closures (BRAC) panels of the late 1980s and early 1990s. In the preceding decade, in what was a classic problem of collective action, Congress had been unable to decide which military installations should be shuttered. While everyone agreed there were too many bases, members of Congress were loath to have installations in their own districts closed. This gave members an incentive to form a coalition with other members whose bases were similarly being threatened, undermining the project. BRAC was an institutional solution to the problem. The panels put forth a set of recommendations, which Congress had to vote on, up or down, without amendments.

BRAC was successful because it established a way for a majority in Congress to work its collective will. But this is precisely why IPAB has failed: There is no such collective will to cut Medicare.

One key reason is that the medical-services community is geographically dispersed. Unlike military bases, each of which is located in a single member’s district, most types of medical-service providers are present in every congressional district. When BRAC suggested this or that base be closed, only a handful of members faced potential political consequences. But if IPAB recommends doctors and hospitals be paid less for this or that treatment, every member of Congress will have interests from his district complaining.

In other words, Congress has no individual or collective political incentive to cut Medicare the way it had an incentive to close military bases. There is a pressing need for Medicare reform, but primarily for the sake of future generations. Constituents are not demanding spending cuts today.

IPAB presents an additional problem that differentiates it from BRAC: The issue of closing military bases is not primarily ideological. The two parties disagree about the proper amount of total spending on national defense, but on the matter of cutting clear waste from the budget, there is a basic consensus. What to do with Medicare, on the other hand, is a heated ideological question, and IPAB takes a liberal approach to cost containment — one that is technocratic and dirigiste — rather than a conservative one.

IPAB’s mandate is relatively narrow: The board can adjust reimbursement rates and nothing more. IPAB is expressly forbidden to consider more fundamental reforms of the program, such as shifting Medicare from the traditional “defined benefit” program to, say, a “defined contribution” model along the lines proposed by House speaker Paul Ryan. (A “defined benefit” model guarantees Medicare recipients certain medical services, regardless of cost, while a “defined contribution” model guarantees recipients a certain amount of money to go to their medical care.) Indeed, IPAB is explicitly designed to prop up the traditional model by tweaking reimbursement rates to keep it sustainable from year to year. The seemingly nonpartisan, technocratic rhetoric of the board’s advocates thus masks its profoundly partisan design. By its very structure, IPAB favors the Democratic approach over any Republican alternative.

Taken together, these two problems mean that IPAB has a very small political constituency in Congress. Public-spirited Democrats, those who favor cutting Medicare costs even if it upsets the medical-services industry in their districts, may be inclined to support it. As for Republican members, political expedience and ideology both cut against it. Republicans who want to keep providers in their districts happy will oppose IPAB, as will conservatives who want to see the outdated fee-for-service model finally reformed.

In addition to trying to work around gridlock by undemocratic means, IPAB is built on the assumption that experts have the knowledge and sophistication to solve complicated policy problems. There is fat to be cut in Medicare, but only the experts can find it. Their proposed changes — cuts to reimbursement rates for treatments that are overpriced or ineffectivewill alter the decisions of service providers, to the benefit of all. This is why IPAB is supposed to be estimable, nonpartisan, and independent. Board members are expected to be at the top of their respective professions, to have no history in partisan politics, and not to hold any other jobs while they serve on the board.

In the American political tradition, this kind of faith in the power of expertise dates back at least to Woodrow Wilson and arguably to the Mugwump movement of the 1880s. If we take politics out of the equation, the thinking goes, we can get some real solutions. The practical problem with this view is that the experts rarely agree.

Consider, for instance, the controversy over the mammogram guidance issued by the Preventive Services Task Force in 2009. The task force, a government panel of experts created to make recommendations on clinical preventive practices, urged against routine screening for women before the age of 50 and suggested that screening be discontinued after the age of 74. This advice prompted widespread pushback from many in the medical-services community and prompted Health and Human Services Secretary Kathleen Sebelius to basically disavow the recommendation. The task force, she said, “is an outside independent panel of doctors and scientists who make recommendations. They do not set federal policy and they don’t determine what services are covered by the federal government.”

This is a telling anecdote. The mammogram recommendation was produced by experts with a good understanding of best practices, yet it did not receive consensus support from the medical-services industry. Why? Because such consensus is actually very difficult to develop, even — perhaps especially — among experts. What happens when IPAB produces similar guidance, but now no longer as a recommendation? It is bound to elicit opposition, perhaps even outrage, from the medical-services community, which will howl in protest that IPAB is cutting muscle and bone, not fat.

In all likelihood, IPAB could not have passed apart from a massive bill such as the Affordable Care Act, which included all manner of inducements to win liberal support. Once IPAB is actually empanelled to make recommendations, its proposals become very difficult to stop. This means its main point of vulnerability is in the nomination process, which is where politicians of both parties have intervened — no nominees have been put forth by Obama or Trump, and the board’s funding has been slashed. It stands to reason that Democrats and Republicans in the Senate would not confirm any eventual nominees, either. This is important, for if there are no members on the panel, then there is nobody to make the controversial recommendations that operate under privileged rules in Congress. Both parties, in other words, have exercised an ex ante veto over IPAB’s recommendations.

Even if IPAB remains unconstituted, however, Congress should still eliminate the law authorizing it, for the language in the law contains a twist: If no members of the board are confirmed, the authority of IPAB falls upon the secretary of health and human services, who will be obliged to make recommendations should projected spending rise too high. In other words, while IPAB itself is vulnerable at the nomination stage, the recommendations it’s charged with making will be made even without it. This poses all the downsides of IPAB (potentially draconian cuts of reimbursement rates) without any of the advertised upsides (a nonpartisan panel of experts who have buy-in from both parties).

None of this is to say that Medicare spending should carry on as projected. From a budgetary perspective, Medicare has been a problem from the day it was first signed into law. And as the Baby Boom generation continues to retire, Medicare will become the largest federal program and generate a staggering budget deficit.

But this country remains a republic in which the people — acting through their elected officials — are meant to rule. The real problem with Medicare is not polarization or political gamesmanship, but rather that the people at large simply do not understand the dire budgetary threat Medicare poses. Thus they do not elect officials with a real conviction to reform it, and no legislative consensus forms on what to do.

IPAB is a failed bureaucratic workaround for what is, at its core, a problem of public opinion. As James Madison once noted, “public opinion sets bounds to every government, and is the real sovereign in every free one.” So long as the people remain generally uninterested in stabilizing Medicare, no technocratic jiggery-pokery can hope to solve the problem.

– Mr. Cost is a contributing editor of The Weekly Standard and a co-author of Failure to Launch: The Institutional Defects of the Independent Payment Advisory Board.

Jay Cost — Jay Cost is the author of The Price of Greatness: James Madison, Alexander Hamilton, and the Creation of American Oligarchy.

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