NCPA - National Center for Policy Analysis

Medicare's New Price Control Board

September 11, 2012

Supporters of the Patient Protection and Affordable Care Act (ACA) claim that the health reform law passed in 2010 will "bend the cost curve," reducing the growth in Medicare spending to a sustainable rate -- without denying necessary or effective care to any senior. Over the first 10 years, the ACA will reduce spending on Medicare by an estimated $716 billion, say Carolyn Needham and Irene Switzer, legislative assistants with the National Center for Policy Analysis.

The ACA assigns the task of figuring out how to slow Medicare's growth to a newly created, 15-member body called the Independent Payment Advisory Board (IPAB). Members of the board will be appointed by the president, but only 12 require Senate confirmation. They will serve up to two six-year terms beginning in 2014.

  • If Medicare spending exceeds target growth rates, as calculated by Medicare's chief actuary, the board must issue "legislative proposals" to limit future spending.
  • If Congress fails to change IPAB's recommendations they will automatically go into effect.
  • According to the 2010 Report of the Medicare Trustees, assuming the ACA is fully implemented, the long-term growth of Medicare will be reduced to the same growth rate as gross domestic product (GDP).
  • Without reform, Medicare spending has been projected to continue growing an average of 2 percentage-points faster than GDP.

By law, however, the board cannot recommend raising revenues or beneficiary premiums or reducing payments to hospitals before 2020. IPAB is also prohibited from directly altering Medicare benefits or eligibility. Required to focus on areas of "excessive cost growth," IPAB will have no choice but to reduce reimbursements to physicians. As a result, many physicians will make difficult decisions about treating Medicare patients that will ultimately limit beneficiaries' access to care.

  • IPAB's recommended savings will be proposed as a bill to Congress at the beginning of every year.
  • Congress can propose an alternate plan, but it must achieve cuts of the same size.
  • If Congress does not alter the board's savings recommendations through legislative action by August 15 each year, the secretary of Health and Human Services is required to implement the board's recommendations.

IPAB will create a series of short-term solutions that do not deal with Medicare's larger, systemic problems. The board's recommendations to cut costs on a yearly basis is reactionary and shortsighted, not structural long-term reform. The method of cost cutting ignores the problem of the growth in health care costs in general.

Source: Carolyn Needham and Irene Switzer, "Medicare's New Price Control Board," National Center for Policy Analysis, September 11, 2012.


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