Don’t Forget About the IPAB

Published March 8, 2016


The Independent Payment Advisory Board, or IPAB, is one of the more notorious provisions of the Affordable Care Act because it is the perfect embodiment of belief in technocratic expertise. The IPAB’s 15 “expert” members would have great power and little accountability.

Since the law’s passage in 2010, opponents have successfully publicized the danger the IPAB poses to sensible Medicare policy and constitutional self-government, to the point that many in Congress now assume it will never go into effect. In June 2015, the House passed legislation to repeal the IPAB in its entirety.

And, yet, it is also clear that Congress’ attention is elsewhere. The slowdown in Medicare spending growth in recent years has made the IPAB less relevant – for now.

But IPAB’s demise is not a foregone conclusion, especially when Medicare spending growth accelerates again, as it almost inevitably will. For now, the IPAB remains on the books. Opponents, therefore, must keep up the pressure and look for opportunities to kill it altogether.

The basic idea of the IPAB is to impose a cap on Medicare spending and then allow the board’s fifteen members to come up with ways to keep program spending under control.

In one sense, it is surprising that the ACA’s authors supported this concept. Those who wrote the law are generally in favor of expanding entitlement programs, not restricting them with caps on spending.

But not all spending “caps” are the same. The key feature is how the cap is enforced. A closer look at how the IPAB and its associated cap on Medicare spending show that they are more aligned with the overall philosophy of the ACA than it might first appear.

The cap on spending is based on per capita Medicare spending growth. From 2013 to 2017, the target growth rate is the average of the general consumer price index and the CPI for medical care. After 2017, the target growth rate is GDP growth plus one percentage point.

If spending is projected to exceed the cap, as determined by the chief actuary of the Medicare program, the IPAB is charged with making recommendations to bring Medicare spending back under the statutory limit.

The law specifies strict rules for IPAB members. They cannot engage in any other “business, vocation, or employment,” which means they must rely entirely on their salary from IPAB. IPAB members are also supposed to be nationally-recognized experts in medical care, health insurance, or economics, and a majority of the members must not be physicians or professionally associated with other health care service providers, such as hospitals. These rules are so onerous that most qualified people will steer clear of serving.

The IPAB is also severely constrained in what it can recommend to slow the pace of Medicare spending growth. The law states that IPAB recommendations cannot increase beneficiary premiums or cost-sharing — and cannot reduce benefits in any way. The IPAB also cannot recommend tax increases. The only options available are adjustments to what Medicare pays for various medical services.

Submission of the IPAB recommendations triggers an expedited process of consideration in Congress. The default assumption is that the House and Senate will consider the IPAB’s recommendations, but that Congress can also choose to approve a different set of changes. If those provisions were to pass Congress and also be signed into law by the president, then of course the IPAB’s recommendations would become irrelevant.

However — and this is the most important point about IPAB — if Congress fails to pass legislation that overrides what the IPAB recommends, then the IPAB’s recommendations automatically go into effect. This is by far the most likely scenario. Although the law theoretically allows Congress to substitute its own ideas for the IPAB’s reforms, in reality, the IPAB’s recommendations would be very hard to override. The timeline is too short. The IPAB must submit its plan for reducing Medicare spending to Congress by January 15, and those recommendations automatically go into effect on August 15 unless Congress passes, and the president signs, an alternative plan before that date. Inevitably, the changes needed to reduce Medicare spending below the target will be controversial, making swift congressional consideration difficult, at best.

Moreover, even if Congress passed an alternative to the IPAB’s plan, that alternative would need to be approved by the president. It seems far more likely that the president will prefer the recommendations of the board to which he will have appointed several members than recommendations coming from Congress. In the unlikely event Congress were able to pass a bill, overriding a presidential veto requires a two-thirds majority vote in both the House and Senate — a very rare occurrence.

The IPAB is fundamentally flawed concept for two reasons:

It tramples on Congress’ power to write laws. The IPAB would have the authority to rewrite any aspect of Medicare’s payment policies — everything from hospital payments, to physician fees, and even how Part D prescription drug plans pay for covered medications — to achieve additional savings. Congress has the constitutional power to write new legislation for a reason; voters can hold their elected representatives accountable for the kinds of laws they pass. Not so with the IPAB. IPAB members will get six-year terms and will be allowed to be reappointed once. Removing them from their positions will be extremely difficult.

It emphasizes payment reductions at the expense of real Medicare reform. The constraints placed on what the IPAB can recommend were not accidental. The authors of the ACA support restraining Medicare spending, but only with government-imposed payment restrictions, not financial incentives. So the IPAB can impose blunt payment cuts on physicians and hospitals — and for the HMOs serving Medicare Advantage patients — but it cannot recommend structural changes, like giving participants in the program incentives for selecting low-cost, high-value care. If payments are reduced too much, the network of willing providers of medical services becomes very constrained, and the participants in the program begin to have trouble securing access to the care they need. Congress could easily find itself undoing payment cuts it previously approved, much like it did for years with the “doc fixes” aimed at undoing the Sustainable Growth Rate formula for physician fees.

Although the IPAB was supposed to begin operations in 2013, the president has yet to nominate anyone to fill the fifteen seats. And the actuaries have not yet projected that spending would breach the cap and trigger the need for an IPAB recommendation.

But spending could accelerate again at any time. Indeed, in the 2015 Medicare trustees’ report, the actuaries predicted spending would exceed the target growth rate in 2017.

The concept of the IPAB has taken a beating in Congress since it was enacted, but the administration still supports it. Moreover, the legal authorization for the IPAB remains on the federal books. Opponents must therefore remain vigilant and keep working until they have the opportunity to repeal it once and for all.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center, a visiting fellow at the American Enterprise Institute, and an affiliated scholar at the Mercatus Center at George Mason University.  He is the author of “The Independent Payment Advisory Board,” published by Mercatus.

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