As Congressional Republicans seek fresh starting points to move health care reform forward, they would be well-served by opting to eliminate one of the most dangerous parts of Obamacare: the Independent Payment Advisory Board.
Often derided as a “death panel,” even without the hype IPAB is a terribly conceived idea. IPAB was given what former Congressional Budget Office Director Peter Orszag called “the single biggest yielding of power to an independent entity since the creation of the Federal Reserve.” Without judicial review or normal regulatory comment processes, the panel’s unelected members can issue nearly bulletproof edicts to reduce payments to Medicare providers as cost-cutting measures.
Sometimes independent government bodies can help with the tough job of fiscal discipline. For example, many costly, obsolete military bases have been closed through a commission process that identifies a list of these facilities, and leaves Congress to vote the entire list up or down.
But IPAB doesn’t work that way — instead of prodding Congress into action, it is designed to discourage Congress from doing so. The president, who is supposed to appoint IPAB’s members (President Barack Obama himself didn’t touch it during his two terms), is legally prohibited from firing those members. Furthermore, the entity’s operating money is a permanent appropriation, not subject to annual budgeting scrutiny. Overriding the panel’s orders would need a congressional supermajority vote, and must be replaced with cost cuts that meet the law’s prescriptions.
All of these protections add up to near-immunity for IPAB’s decisions, effectively undermining many potential reforms that could do a better job of program savings in the long run.
And what, exactly, would IPAB be able to decide? Here we find a case study in the folly of centralized planning … and, in the process, lessons for Medicare, Social Security and other imperiled federal benefit programs.
In 2010, Social Security began paying more in benefits than it collects in taxes. Medicare is projected to hit the same point in 2020. In 2028, Medicare is expected to exhaust its reserves. Thereafter, the red ink starts to overwhelm the federal budget; the result will not be pretty.
Unfortunately, the core liberal response to these woes is coercion: shovel more money into the system by raising taxes and use the government to control prices. In the case of IPAB, that means lower reimbursements for Medicare services. The same mindset was behind the Clinton and Sanders plans for pharmaceuticals, which relied mostly on the government setting price ceilings on drugs.
The reason this never works is simple — it’s the classic economics adage “there is no such thing as a free lunch.” The government can arbitrarily impose a new price on something, but it can’t force people to make it at the same quality and quantity as before. Responding to lower margins, companies often lay off employees and reduce production or decide to start selling something else.
The result is austerity. In the 1970s, when the Nixon administration imposed price controls on gasoline, the true “cost” was paid in the form of hours-long lines at the pump. In Venezuela right now, there are stores with completely barren shelves as the government desperately decrees how much consumer items “should” cost. And a scarcity of one good can also cause tremendous price spikes in others.
A market process that drives the prices down over time offers a comforting contrast. In 2001, a 42″ Philips HD television went for $7,499. Today, the same TV would cost around $200. Over that time, fierce competition drove electronics companies to find cheaper ways to manufacture televisions. The production cost itself decreased – and lower prices naturally resulted.
Bringing that type of dynamic innovation to the health care market is a challenge because the tentacles of government are already so deeply entangled in the health care. But it can be done. Removing tax and regulatory barriers to telemedicine, to interstate competition and individual portability for health insurance, and to lifesaving drug development that shortens costly hospital stays, can all contribute to the sustainability of federal health programs. So can smart cost-control techniques such as “recovery audits” for improper payments.
With its singular focus on price control-induced rationing, however, IPAB is a distraction from those needed reforms; worse, it is an impediment to the type of creative policymaking that will be necessary to deliver the quality health care that our economy can support.
Rep. Phil Roe (R-Tenn.) and Sen. John Cornyn (R-Texas) have introduced legislation in their respective chambers to repeal the provisions of Obamacare that created IPAB. Its prompt passage would send an important message that Congress is committed to genuine progress for patients and taxpayers.
Pete Sepp is president of the National Taxpayers Union.
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