The ACA, the GDP, and the IPAB

Yesterday, Ezra Klein wrote,

[T]he basic argument is that the bill [the ACA] limits how fast a particular class of doctor payments can grow. Right now, they grow as fast as Medicare grows — which is fast. A lot faster, in fact, than the economy grows. Health-care reform limits increases in these payments to one percentage point faster than however fast GDP is growing.

The moment I read that I thought, “What class of doctor payments is he talking about, and what in the ACA causes their growth to be within GDP + 1 percentage point?” I should know this, but I couldn’t immediately answer my own question, though I had a hunch.

Of course the answer is found in many places, including those I’ve cited like Tim Jost’s NEJM paper on the Independent Payment Advisory Board (IPAB).

Each year, beginning April 30, 2013, the chief actuary of the Centers for Medicare and Medicaid Services (CMS) will make a determination as to whether the projected average Medicare growth rate for the 5-year period ending 2 years later will exceed the target growth rate for the year ending that period. For years before 2018, the target growth rate is the projected 5-year average of the mean of the Consumer Price Index (CPI) and the medical care CPI; for 2018 and later years, the target is the nominal per capita growth rate of the gross domestic product plus 1 percentage point. If the CMS actuary determines for any given year that the projected Medicare growth rate will exceed the target rate, the board [the IPAB] must make proposals that would reduce Medicare spending overall by either a percentage set in the statute (1.5% after 2017) or the projected excess, whichever is less. [Bold mine.]

This must be what Klein was referring to, though it doesn’t seem to apply to a “particular class of doctor payments” but to all of Medicare. However, in the next paragraph, Jost writes,

The effects of the IPAB’s proposals, however, may not be to “ration health care,” raise costs to beneficiaries, restrict benefits, or modify eligibility criteria. Proposals may not, before 2020, target the rates of particular providers — primarily hospitals and hospices — that are already singled out by the ACA for extraordinary cuts. The board is not prohibited from cutting payments for physicians, but its powers may be limited if a permanent fix for the sustainable growth rate — the formula that determines increases or decreases in Medicare’s physician payments — is passed. [Bold mine.]

So the GDP + 1 percentage point growth cap goes into effect in 2018 but it isn’t until 2020 that the IPAB can do much other than cutting physician payments. Hospitals and hospices rates cannot be touched until then. Perhaps this is the full answer.

By the way, Klein’s post was about Rep. Ryan’s plan, which also seeks to limit Medicare spending growth to GDP + 1 percentage point. Thus, in the long term (after 2020) and as it pertains to spending (but not otherwise), Rep. Ryan’s plan and the ACA are essentially equivalent with one huge exception. As I wrote before and as was confirmed to me by Rep. Ryan’s staff, his plan would have the Secretary of HHS be responsible for keeping Medicare costs under control. The ACA puts that control in the hands of the IPAB.

Who do you trust to control Medicare costs, a Secretary that has to answer to the president and be confirmed by Congress, whose agency funding has to be approved annually by Congress or an independent board that presents cost control options to Congress for an up or down vote, a down vote requiring Congress to replace them with a plan that would save the equivalent amount?

On this point alone–who or what is really in control of costs–I’ll take the IPAB as provided for by the ACA. It’s just more believable that it could do the job. If we can’t trust the IPAB to get it done, I don’t see why we should trust the Secretary of HHS.

It’s not as if Rep. Ryan couldn’t also call for an IPAB-like entity to manage cost growth. If he did, I would not be as critical on this point (still, I’d argue for competitive bidding). Why doesn’t Rep. Ryan do so? I don’t get it.

UPDATE: Rep. Ryan once endorsed an IPAB-like entity.

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