I recently had lunch with several of my colleagues and the topic of the Ryan-Wyden plan came up in the conversation. The question was asked “Is it fair to judge the Ryan plan against traditional Medicare? Shouldn’t we be comparing it with the Obama plan? Fair question. But what is the Obama plan for Medicare? It’s more than simply cutting $716 billion from Medicare and redirecting it to cover Medicaid expansion and the exchange subsidies. The President’s plan creates the Independent Payment Advisory Board whose 15 members are tasked with reducing the growth in Medicare spending.
Appointed by the President and confirmed by the Senate, IPAB has the power to cut Medicare payments to providers and the private insurers that participate in the Medicare Advantage and prescription drug programs. Hospitals and hospice payments are exempted from IPAB oversight until 2020. The board can also change the payment structure from fee-for-service to capitation or some hybrid form to achieve its targets.
Over the period 2013 through 2018 per capita Medicare spending is targeted to grow at a maximum rate equal to the average of the Consumer Price Index (CPI) and the Medical CPI. Annually the board is responsible to develop a plan to keep Medicare spending below the target. Not a problem, you say? Over the past decade the CPI has grown at an annual rate of 2.66% and the Medical CPI 4.53%. At the same time per capita Medicare spending grew 6.51% annually. If these results continue into the future, the IPAB would have to cut Medicare spending 2.91%. But with hospitals and hospices exempt (37% of Medicare spending), spending on physicians’ services and other nonexempt categories would have to be cut 4.62%.
About the only power IPAB has to fulfill its mission is cutting payments to providers. It may not propose any real reforms to the program (such as a premium support mechanism like the Ryan-Wyden plan). It also cannot ration care, restrict benefits, modify eligibility rules, or make changes in cost sharing.
Ewe Reinhardt, Princeton economist, says its the “only hope to restrain Medicare spending.” Peter Orszag, former director of the Congressional Budget Office under Obama, says its the “most important aspect of the Affordable Care Act.” Regardless of those claims, Paul Ryan calls it a “rationing board” and Jeremy Lazarus, president elect of the American Medical Association says it “would have too little accountability and the power to make indiscriminant cuts that adversely affect access to health care for patients.”
Does the rationing claim stand up to careful scrutiny? Despite the language of the Act, rationing is inevitable. The board can set prices for specific services so low that no provider will offer them, or at least fewer will offer them. Many physicians already refuse to see new Medicare patients and as payment rates fall below those of Medicaid, more will follow. While hospitals escape the wrath of IPAB until 2020, they too will find it more difficult to remain solvent because of low payment rates.
If economics teaches us anything, it teaches us that price controls create shortages. And if we refuse to ration via prices, we’ll have to find another mechanism to ration.
Note to self: Another reason to delay retirement. Keep your job so you can keep your private health insurance. Delay Medicare’s control over your access to medical care as long as possible.
