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Getting the IMAC’ Proposal Right: Some Health Care Homework for the Recess

Members of Congress will hear and think a lot about health care reform over the recess. We can only hope that legislators will resolve the contradictions in some of their own positions and that the drumbeat of misinformation will not produce total panic.

[IMGCAP(1)]When they come back, however, if they still want to work on legislation, they will need to address a lot of loose ends from previous work. One is the president’s proposal for an “Independent Medicare Advisory Council.—

The administration made this proposal on July 17 so as to reassure conservative Democrats that health care reform wouldn’t lead to out-of-control costs. The idea was to make it difficult for the interest groups that make money off health care (which means off the rest of us) to appeal to Congress to block administrative efforts to save money in Medicare.

In the administration’s version, the council would have five presidential appointees. It would issue two reports a year recommending changes in Medicare payment regulations. In each case, if the president approved the recommendations, then Congress would have 30 days (not counting periods of more than three days in which it is adjourned) to pass a resolution of disapproval. That resolution would be a law, so it would require the president’s signature. Thus, the IMAC, if the president agrees, could change Medicare payments unless a veto-proof majority of Congress disagreed.

Some health policy commentators, such as Princeton University economist Uwe Reinhardt, immediately praised the idea, comparing it to how administrators in some other countries have somewhat more authority to control costs. In his July 22 press conference, President Barack Obama asserted that growing agreement on this idea was a sign of progress toward successful legislation.

On July 25, however, the Congressional Budget Office issued a letter estimating total savings of only $2 billion over the period from 2010 to 2019 if the IMAC proposal were part of the then-draft House bill. The only surprise in this estimate was that the CBO thought it was appropriate to estimate effects at all.

The CBO has to consider possible effects of procedures when it judges if a legislated spending or revenue target is credible; but to estimate the effects of procedures absent any targets is beyond both the CBO’s responsibilities and its competence. Nobody can estimate that kind of thing with any credibility. It involves a great deal of guesswork about the preferences of future officeholders and appointees.

Even though the CBO had no basis for making any estimate, the lack of a positive estimate appeared to dampen enthusiasm for the idea. In a long editorial in the Aug. 2 Sunday New York Times, however, that paper’s editors praised the idea of an “overseer— that could help the government “change course rapidly— to improve cost control. It argued this overseer should be an “independent commission of experts,— “insulated from political pressure,— and even have “a mandate to impose across-the-board cuts in Medicare if it falls short.— Meanwhile, Office of Management and Budget Director Peter Orszag has argued, correctly, that better cost-control institutions are a good idea even if the savings are not immediate and that providing assurance that costs will not fly out of control later in the coming decade and beyond is especially important in the context of scare stories about the long-term budget outlook.

Hence IMAC or an alternative is by no means off the table. There is a case for making it easier for government to regulate Medicare costs. But there are major questions that require careful consideration. It would be nice if, when Congress returns, staff in Congress and the administration had developed some answers.

1. What abuses are likely, and how could they be prevented?

The real power would be in the president’s hands, because the council’s recommendations will only matter if the president approves them, and there is no way to prevent him from influencing what is proposed. What will happen with a conservative Republican president?

The prospects seem pretty clear. In the Congressional 1995 Medicare savings proposals, President George Bush’s original Medicare drug benefit proposals, the text of the 2003 prescription drug law, and the Centers for Medicare and Medicaid Services’ interpretations of that law, conservatives have continually favored private insurers at the expense of traditional Medicare, including by both cutting payments within the traditional program and intentionally overpaying private insurers. They have often also tried to means-test benefits or increase cost-sharing for beneficiaries. The Obama administration’s proposal could allow a conservative majority on the council and the president to make major changes in Medicare’s basic design over the wishes of Congressional majorities.

Neither cutting the benefits nor changing the balance between traditional Medicare and Medicare Advantage plans should be possible without legislation. Therefore any plan that comes to the House or Senate floors should require that any recommendations for savings reduce the overall cost per enrollee, on a risk-adjusted basis, by the same proportions for enrollees in both traditional Medicare and private plans. It should also state that the council’s recommendations cannot reduce the average actuarial value of the Medicare benefit package as a share of total costs for beneficiaries.

2. Why focus only on Medicare?

It is rather strange that, worried about costs of an expansion of coverage to the non-Medicare population, budget hawks and even the editors of the Times focus on creating automatic mechanisms to cut Medicare spending.

Private insurance cost increases already affect the federal budget by raising the size of the tax preference for employer-sponsored health insurance. Any of the bills being discussed would create subsidies whose costs would depend on the prices of insurance plans, so the federal budget would be further impacted by costs beyond Medicare. Hence budgetary responsibility calls for mechanisms which would apply to the vast majority of health care costs, not just Medicare.

As an addition to current draft legislation, the IMAC idea won’t work for that because the federal government is not setting payment rules for that insurance, so changes in the rules cannot be called an administrative matter. There are two logical responses to that problem.

The first is to do what Reinhardt and Paul Ginsburg, perhaps the two senior experts on health care costs in the country, recently recommended in the Health Affairs Blog: create a system of all-payer fee regulation, setting fees paid by both Medicare and private insurers. This is how much of the rest of the industrialized world controls costs. There has been little discussion of this approach, even though, unlike everything else that has been proposed, it would actually offer savings to the employers who sponsor insurance. In any event, if there were a rate-regulation system, established by law, then an independent council could have the same role in that system as is proposed for Medicare.

The second approach would be weaker, but at least offer some benefits. In the absence of all-payer regulation, a council could be required to propose savings for private insurance of the same proportional size as any proposal for Medicare savings. The president could be required to support either both recommendations or neither. The non-Medicare savings would have to be legislated, but there could be a fast-track procedure. Changes might not pass, but perhaps it will be difficult to justify controlling spending only on elderly and disabled people.

3. What should be done about conflicts of interest?

The Times editorial said the “overseer— should have “a membership beholden to no special interest.— The administration proposed that the members be “physicians or have specialized expertise in medicine or health care policy.— Suffice it to say that disinterested expertise is rather hard to identify.

Advocates of the IMAC approach compare it to the Congressional Defense Base Closure and Realignment Commissions (BRAC). Members of the BRAC, however, recuse themselves if bases in their states are being considered. This has not crippled the BRAC process because only a small portion of bases are in each state and there are enough members after recusals to have meaningful discussion. The issues in medical costs are not limited in the same way. A former chairman of medicine in an academic medical center, for example, would have arguable conflicts of interest for any hospital or physician or medical education proposal.

James Madison had an answer to this problem: In order to prevent capture by narrow interests, the political system should represent a broad array of interests, with ambition countering ambition. Yet this solution appears to be what supporters of the IMAC approach want to avoid. At a minimum, however, they should recognize that five members on a council is too few. It should be large enough and diverse enough so the most directly interested members could recuse themselves and still leave enough people in the room for serious discussion.

Proposals for something like an Independent Medicare Advisory Council are presented as a neutral, objective way to take politics out of Medicare cost control. If such proposals have any virtues at all, they should be applied beyond Medicare. Any plan should not allow bypassing the legislative process to transform the nature of Medicare or the broader health care system. It should also limit the dangers of conflicts of interest.

If it can be designed to meet those goals, a modified IMAC procedure could be part of building a better U.S. health care system. So it’s worth some work to get it right.

Joe White is Luxenberg Family Professor of Public Policy at Case Western Reserve University. This commentary reflects only the views of the author and in no way represents the views of the university.

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