How ObamaCare Cuts Medicare


Over the weekend, The Washington Post published a Q&A-style explainer on the Independent Payment Advisory Board—the panel of federal health care technocrats charged with keeping down spending growth on Medicare.

The details are complicated, but the gist is simple: If spending on Medicare is projected to grow beyond certain yearly targets, then it's IPAB to the rescue: The 15-member panel appointed by the president has to come up with a package of cuts that will hold Medicare's growth in check. If Congress want to override that package, it only has two options: Vote to pass a different but equally large package of cuts or kill the package entirely with a three-fifths supermajority in the Senate.

The Post lays out the basic framework above. But what it doesn't explain in any detail is exactly how those cuts will be achieved. And that, of course, is where the difficulty begins: Here's how The Wall Street Journal's editorial board explained it last month: "Since the board is not allowed by law to restrict treatments, ask seniors to pay more, or raise taxes or the retirement age, it can mean only one thing: arbitrarily paying less for the services seniors receive, via fiat pricing." Medicare already centrally sets the prices it pays for the services of doctors and hospitals. Given the board's limitations, the most likely cuts we'll see from IPAB, then, will be arbitrary, quality-blind reductions in these payments (though hospitals will be exempt from cuts for the first couple years).

We know what happens next: Providers stop taking on new Medicare patients, or drop out of the system entirely. In Medicaid, which pays far lower rates than Medicare (which pays somewhat lower rates than private insurance), this is already common: As one emergency physician recently told The New York Times, "Having a Medicaid card in no way assures access to care." If IPAB cuts Medicare provider payments down to the bone, it could end up transforming Medicare into a seniors'-version of Medicaid.

Will seniors have an out, a way to get out of the system? Perhaps. But perhaps not, or not always. We've already seen one recent case in which several seniors were told by a federal judge that if they want to take the benefits they paid into from Social Security, they must also enroll in Medicare. It's an entitlement. Is it also an obligation? 

The more likely out is that seniors will complain loudly to Congress, which will then rewrite IPAB's rules to further limit the sort of cuts the panel can implement. As The Post notes, IPAB is intended by its backers to give Medicare-cutting power to technocrats rather than politicians in the hopes that the technocrats will be less swayed by political pressure from both seniors and the health care industry. 

In response to complaints from the health care industry, Sen. John D. Rockefeller IV (D-W.Va.), who was one of IPAB's architects, said that the board was specifically designed to reduce the influence of "special interests" on the Medicare payment policy. Those interests, he and others say, have kept Congress from making the tough decisions needed to hold down spending and reduce the deficit.

But Congress will still have the power to change IPAB's rules, or get rid of it entirely. Indeed, there's already movement to do so, with supporters in both parties.

The big picture is plain: This is what happens when you yoke a huge portion of a major industry (the health sector) to a single, government payer. But the best solution is not to continually inflate centrally-set rates on the taxpayer dime, or to attempt to control spending through a commission of independent experts, however well intentioned. It's to allow market-driven price signals (starting by restoring balancing billing) into a quasi-government-run health care system that, for decades, has been lashed to one federally determined price setting scheme or another, nearly all of which were intended to restrain out-of-control spending somehow—and, as the current entitlement predicament shows, nearly all of which failed.