On Health Care and Deficit, Obama Punts (Mostly) and Invites a GOP Fight

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In his Wednesday speech on deficit reduction – and even in fact sheets distributed ahead of time – the President wasn’t big on specifics. On health care spending, a primary driver of long-term deficits, he was downright vague. In a briefing with reporters, two “senior administration officials” armed with talking points repeatedly stressed that “this is a framework, not a plan.” The speech today was about “putting ideas on the table,” not offering specific legislative proposals.

This vagueness was calculated, of course. The fewer specifics you offer, the less specific criticism you’ll have to bear and the more wiggle room you leave yourself to claim you’re not really proposing that thing that everyone hates.

But Obama won’t be able to insulate himself from criticism of his health care “ideas.” In fact, a major piece of what he proposed today in fairly broad strokes is sure to generate renewed accusations that the Administration wants to “ration Medicare.”

Obama says he wants to strengthen the Independent Payment Advisory Board. This is the 15-member board created by the Affordable Care Act and charged with keeping the growth in Medicare spending to per capita GDP plus 1% beginning in 2018. The board, serving paid 6-year terms, would be appointed by the President, in consultation with Congress and with the consent of the Senate, but essentially, IPAB takes the duty of cutting Medicare reimbursement out of Congress’s hands.

IPAB will propose cuts based on Medicare cost projections. If Congress can come up with alternate cuts that achieve the same savings as IPAB recommends, it can override the board. In general, though, the creation of IPAB is a transfer of power from the legislative to the executive branch and is intended to make containing Medicare spending possible. The idea, say IPAB’s architects, is to insulate Medicare payment decisions from political whims and special interests.

(For much more on the details of IPAB, see this column by Timothy Jost and published in May 2010 in the New England Journal of Medicine. See also this deep and thorough issue brief from the non-profit, non-partisan Kaiser Family Foundation.)

Obama proposes setting the GDP benchmark lower, at GDP plus .5% in 2018, which would do more to restrain Medicare’s cost growth. IPAB’s recommendations, which would probably include cuts in provider reimbursements, would kick in at lower levels of spending under Obama’s new proposal. (This paragraph has been altered slightly for clarification.)

That Obama opted to focus on IPAB is a direct shot at the GOP; he is asking for a fight and he’ll likely get one. In Paul Ryan’s 2012 budget proposal, the House Budget Chairman notably proposed repealing IPAB even though he suggested leaving much of the ACA in place. (And even though the Congessional Budget Office says IPAB will cut some $30 billion in spending by 2019.) Here’s what Ryan says in the “Path to Prosperity”:

The new health care law empowers bureaucrats at the expense of patients and providers, setting up an unelected board of “experts” – the Independent Payment Advisory Board, or IPAB – tasked with squeezing savings out of Medicare through formulaic rationing. One-size-fits-all decisions to restrict certain treatments punish beneficiaries by hitting all providers of the same treatment with across-the-board cuts, with no regard to measures of quality or patient satisfaction.

This budget would eliminate IPAB and stop the raid on Medicare.

So the IPAB will become an intense battleground. Obama likely thinks he has good cover, however. The Simpson-Bowles deficit commission recommended empowering IPAB even more than Obama suggested today. (See page 34.) It said IPAB should be able to make recommendations for private health insurance plans, which would make IPAB’s power much more dramatic. Simpson-Bowles also said IPAB should be able to recommend cuts in payments to all providers, while the existing IPAB structure includes various carveouts.

Obama left other deficit reduction ideas on the table. He does not support raising the Medicare retirement age to 67, as Ryan suggests. A senior administration official was also careful to point out that capping or eliminating the tax exclusion for job-sponsored health benefits has not been proposed. (This was a major proposal in Simpson-Bowles and one that health care economists say should be seriously considered if the long-term health spending crisis is to be addressed.) Simpson-Bowles also recommended increasing cost-sharing for Medicare beneficiaries; Obama said nothing about this.

In addition to proposals to strengthen IPAB, Obama winked at Republican governors by pledging to simplify Medicaid and give states more flexibility in how they run the program. (He did not recommend transforming the state-federal program into a series of block grants, as Ryan suggest.) Obama also indicated he is open to using Medicare’s purchasing power to negotiate drug prices – possibly nod to liberals angered by the White House backroom deal with the pharmaceutical industry struck during the health reform debate.

How exactly would the Medicaid and prescriptions drug proposals work? He didn’t say.

Here are Obama’s remarks today on his health care deficit reduction plan:

The third step in our approach is to further reduce health care spending in our budget. Here, the difference with the House Republican plan could not be clearer: their plan lowers the government’s health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government’s health care bills by reducing the cost of health care itself.

Already, the reforms we passed in the health care law will reduce our deficit by $1 trillion. My approach would build on these reforms. We will reduce wasteful subsidies and erroneous payments. We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency and speed generic brands of medicine onto the market. We will work with governors of both parties to demand more efficiency and accountability from Medicaid. We will change the way we pay for health care – not by procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results. And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services seniors need.

Now, we believe the reforms we’ve proposed to strengthen Medicare and Medicaid will enable us to keep these commitments to our citizens while saving us $500 billion by 2023, and an additional one trillion dollars in the decade after that. And if we’re wrong, and Medicare costs rise faster than we expect, this approach will give the independent commission the authority to make additional savings by further improving Medicare.

But let me be absolutely clear: I will preserve these health care programs as a promise we make to each other in this society. I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations.