(Page 5 of 5)
It also starts a new round of price-control Whac-A-Mole via yet another mechanism designed to rein in Medicare spending. The Independent Payment Advisory Board (IPAB), an ostensibly independent 15-member panel, is charged with reviewing Medicare spending each year and making recommendations to Congress aimed at keeping costs below a threshold based on inflation in both the health care sector and the economy as a whole. Most of the board’s recommendations are likely to address reimbursement rates. Those changes will take effect unless Congress votes them down and approves an alternative savings plan.
The board’s boosters have great hopes that it will finally control the growth of Medicare. But the program’s own number crunchers have less confidence. In May 2011, Medicare’s actuary and its director of cost estimates warned that “it is doubtful that Medicare providers can take steps to keep their cost growth within the bounds imposed by these price limitations, year after year, indefinitely.” Over time, they said, the new “price constraints would become unsustainable,” noting that ObamaCare’s payment updates likely would result in 15 percent of hospitals, home health agencies, and nursing facilities operating at negative margins by the end of the decade.
The current head of the CBO, Douglas Elmendorf, also seems wary. In the summer of 2009, when IPAB was first discussed, Elmendorf wrote a letter to Congress that said “in CBO’s judgment, the probability is high that no savings would be realized…but there is also a chance that substantial savings might be realized”—a polite way of signaling minimal confidence in the board’s ability to cut costs.
That suggestion was affirmed the following summer, just months after ObamaCare was enacted, when Elemendorf released the CBO’s long-term budget outlook. In the alternative fiscal scenario, which is based not on current law but on the CBO’s best guess as to how legislation will change and evolve, Elmendorf assumed ObamaCare would fail to achieve its intended Medicare savings. The CBO’s mission does not include making policy recommendations. But it was hard to read the CBO’s report as anything other than an implicit jab at the notion of relying on an independent advisory board to control costs.
And why shouldn’t the CBO—or anyone else—be skeptical? Congress has not given up the game of Whac-A-Mole. It has merely assigned an independent committee to play for it. The board will face the same problems that price controllers have always faced: Without market signals, prices are inherently arbitrary. It’s the socialist calculation problem all over again. There is no way for policy makers to avoid it—except, of course, by refusing to play the price-setting game at all.
At this point, that does not seem likely. Although it was passed based on an explicit promise not to control the practice of medicine, Medicare is now defined by its many payment processes, which exert substantial influence on how doctors and hospitals treat patients. “Medicare screws up the American medical system, period,” says Holtz- Eakin. It does so not by telling doctors what to do but by deciding what to pay. He who controls the price, controls the system.
Peter Suderman is an associate editor at reason.