A bad reason to oppose Burwell

Before the ink was dry on Secretary Sebelius’s resignation letter, the knives started to come out for the nominee to replace her, Sylvia Burwell. Over at Forbes, Michael Cannon has predicted—indeed, he hopes—that she will have a “brutal confirmation process,” and all because of IPAB.

What’s IPAB? The ACA establishes the Independent Payment Advisory Board, on which fifteen health-care experts are supposed to sit. If Medicare spending over a five-year period increases faster than spending targets linked to economy-wide inflation (through 2015) and economic growth (for 2020 and afterward), IPAB is required to submit, each year, a “proposal” to slash Medicare spending. Unless Congress enacts and the President signs legislation making equally large cuts to Medicare, the proposal goes into effect.

IPAB is understandably controversial. In a democracy, it’s awkward to punt important decisions about government spending to unelected bureaucrats. The point of IPAB, however, is to serve as a pre-commitment device, one that reflects the public’s genuine desire to constrain Medicare spending even if feckless legislators can’t muster the political courage to do it themselves.

In this, IPAB resembles the Federal Reserve, on which it is loosely modeled. Just as the Fed takes monetary policy out of the hands of politicians who might be tempted to print money during an election season, so too IPAB takes Medicare out of the hands of politicians who fear an electoral backlash if they make needed cuts the program.

That’s where Burwell comes in. If IPAB hasn’t been established—and President Obama hasn’t yet nominated anyone to sit on it—the Secretary of HHS must submit proposals in its place. Because the Secretary can wield IPAB’s Medicare-cutting powers herself, Cannon believes that “[t]he question confronting senators is, should Burwell be entrusted with more power than the entire Senate?”

This is rhetorically powerful, but it’s the wrong question. Set aside whether it would be proper for the Senate to reject a nominee not because of her qualifications, but because it disliked the powers of her office. The fact is that Burwell will never exercise IPAB’s powers. Under the ACA, the Secretary can only issue a proposal if the Medicare per capita growth rate exceeds a target rate. CBO estimates that the growth rate is expected to be below the target until 2022. The Obama administration will be long gone by then, as will Burwell.

What if Medicare spending increases by an unexpected amount in the next few years? Well, let’s game it out. Under the ACA, the Secretary must submit a proposal by January 25 of each year, but only if CMS’s actuary determines by April 30 of the previous year that the target was exceeded. The target won’t be exceeded this year, so there won’t be a proposal in 2015. And because President Obama will leave office on January 20, 2017, Burwell won’t be submitting a proposal in 2017, either.

At most, Burwell could submit a proposal in 2016—but only if Medicare spending exceeds the target by April 2015. In any given year, the per capita growth rate is measured as a five-year average, including actual spending from two years before and projected spending two years out. Last year, the five-year growth rate was 1.15%—nowhere near the current 3% target. The growth rate this year will probably be only slightly higher.

To get that average up, spending would have to increase at a furious clip to make up for today’s slow growth. That’s exquisitely unlikely to happen within the coming year. To the contrary, CBO’s projections suggest that the five-year per capita growth rate in 2015 will be a measly 1.17%.*

All of which is to say that Burwell isn’t about to submit any IPAB proposals during her tenure. Her confirmation hearings should focus on the powers she will exercise—not the ones she won’t.

* For those looking to replicate this figure at home, I calculated the total per capita growth rate by weighting the “average benefit spending per beneficiary” percentages, which are broken out for Parts A, B, and D, by the relative contributions of those parts (48%, 41%, and 11%, respectively) to overall Medicare spending.


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