Medicare, the federal health care program for America’s seniors, represents $30.8 trillion in long-term unfunded obligations. If Medicare’s runaway costs are not reined in, the program could cease to exist for future generations.
The issue is not whether Medicare costs should be controlled but how. Congress can pursue one of two routes: (1) It can change the structure and culture of Medicare to empower patients to make health care decisions in order to achieve the best value, forcing plans and providers to compete for their dollars, or (2) it can further empower bureaucracy to impose top-down controls on the costs of services. This can indeed reduce spending, but it guarantees a simultaneous reduction in the quality of health care Americans enjoy today.
The first is the path taken by Budget Committee Chairman Paul Ryan (R–WI) in his fiscal year 2012 budget proposal. Heritage’s Robert Moffit and James Capretta write that a premium support system like the one proposed by Ryan would:
…give Medicare patients control over the flow of dollars and freedom to make decisions about how they access medical services. This will stimulate intense market competition among plans and providers, control costs, and promote rapid innovation and higher productivity through the efficient delivery of quality care, thus guaranteeing value in return for retiree premiums and taxpayer dollars.
Last week, President Obama embraced the alternative: toughen up the bureaucracy and ratchet down Medicare payment to doctors and hospitals. The President described strengthening the Independent Payment Advisory Board (IPAB), a 15-member board of unelected officials created under Obamacare to rein in the cost of Medicare.
Under Obamacare, the board can tweak Medicare to hold growth in spending beneath its target, mainly by making cuts to provider reimbursement rates. Reducing provider payments means reduced senior access to physicians, another form of rationing of health care that already occurs to some extent in Medicare today.
Strengthening IPAB could have even more alarming consequences. The President suggested further reducing the growth rate target IPAB would act to achieve. The White House would “give IPAB additional tools to improve the quality of care while reducing costs, including allowing it to promote value-based benefit designs that promote proven services like prevention without shifting costs to seniors.” In addition, it would “give IPAB additional enforcement mechanisms such as an automatic sequester as a backstop for IPAB, Congress, and the Secretary of Health and Human Services.”
The consequences of a strengthened IPAB would be far-reaching. In today’s Wall Street Journal, British physician Anthony Daniels outlines why focus on prevention will be unsuccessful at addressing Medicare’s fiscal problem based on his experience with Britain’s National Health Service. Furthermore, while cutting physician salaries would enable the board to contain costs by restricting access to care, allowing it to make benefit and coverage determinations in the name of “value” would require the use of comparative effectiveness research and cost-effectiveness information in ways that Americans would find objectionable. Obamacare already provides important tools for rationing through its creation of the Patient-Centered Outcomes Research Institute. The President’s proposal would give IPAB the power to put the hammer to the nail.
The track record of top-down cost containment in Medicare isn’t politically attractive, evidenced by Congress’s continued delay of the formula-driven cuts to physician payments. These are already prescribed in law by the Medicare “sustainable growth rate” (SGR) formula. Not only would empowering IPAB hurt the quality of health care in the United States and the autonomy of doctors and patients, but, if the standard political response is the same as the SGR, it would also be unsuccessful at reversing Medicare’s looming insolvency.
The President’s answer to Ryan’s proposal to reduce the deficit hardly represents a credible strategy. It falls far short of what is needed to rein in health care costs and restore sustainability in Medicare. Meanwhile, the consequences of such a policy for patients would likely be reduced access to care, thus introducing the kind of health care rationing that Americans fear. The way to avoid such an outcome is to repeal the IPAB and the rest of Obamacare and then to pursue consumer-driven reforms that put patients, not bureaucrats, in charge.
Read more about why the IPAB falls short of real Medicare reform here.