Recently, transitioning Medicare into a premium support system is making a resurgence into the public eye, and garnering significant support from many Republicans (and some prominent Democrats). Under premium support, if per beneficiary costs grow faster than a specified limit (generally, one percentage point faster than the economy), seniors will either have to pay higher Medicare premiums or shop for a competing private plan. The theory is that if consumers are made more directly aware of the cost of their health care, they will have greater incentives to spend less and/or demand greater efficiencies on the part of insurance companies and health care providers. Additionally, Congress would presumably face increased pressure to control costs in order to stop Medicare premiums from increasing.
At the same time, many center-left thinkers, such as Peter Orszag, sing the praises of the Independent Payment Advisory Board (IPAB), touting it as potentially the single greatest cost-control mechanism in the Affordable Care Act (ACA). IPAB’s mandate is to bring Medicare in line with certain spending targets by proposing packages of reforms that alter the benefits covered by Medicare and how it pays for them. The problem is that IPAB doesn’t have all the tools it needs to succeed.
Premium support will give budgeteers a greater level of certainty over long-term costs. Simultaneously, providing more latitude to IPAB will supply the government with stronger mechanisms to implement innovative delivery system and payment reforms.
In exchange for agreement on a premium support option for Medicare (as proposed by the BPC’s Domenici-Rivlin Task Force), Congress should consider strengthening IPAB by allowing it to make recommendations for cost-sharing and benefit design, and to eliminate the exemption of certain provider groups (most notably, hospitals) from the Board’s authority to recommend short-term changes. The thought that Congress would ever vote to strengthen a key component of the ACA (like IPAB) or make significant changes to Medicare may seem unlikely politically, but the Bowles-Simpson Fiscal Commission did receive bipartisan agreement around a version of this very trade-off. The Commission report included provisions to strengthen IPAB and an illustrative proposal of premium support in order to control Medicare cost growth.
Until further action is taken to truly constrain the growth of health care costs, the U.S. will never fully escape its long-term debt problem. There is no way to indefinitely sustain federal health costs that grow significantly faster than the economy. Instead of haggling over whether or not the ACA was a step in the right direction, let’s move forward together on solutions to control health care cost growth because this is one problem that’s not going away.