To Save Medicare, Choose Your Bureaucrat

June 24, 2011

Who's worse to deal with: Medicare or private insurers? The answer to that question will determine which Medicare cost-reduction plan is worse for physicians.

Physicians, here's a question for you. Who's worse to deal with: Medicare or private insurers?

The answer to that question, I think, will determine which Medicare cost-reduction plan is worse for physicians - the Republican plan as contained in the Rep. Paul Ryan budget proposal, or President Obama's plan, embodied in the health reform law.

First, the Obama plan: The health reform law includes an Independent Payment Advisory Board (IPAB) for Medicare whose job is to recommend ways to reduce costs. Derided by Republicans as a "rationing board," IPAB will replace the toothless Medicare Payment Advisory Commission, whose cost-cutting suggestions become policy only if Congress concurs, which it never does. IPAB's determinations become policy unless Congress overrules them.

And IPAB will have to administer strong medicine if it's to come close to solving Medicare's problem. Health costs now account for 26.5 percent of the federal budget, and growing, growing, growing. (When Medicare started, health costs amounted to 2.6 percent of federal spending.) The overseers of Medicare's trust fund recently acknowledged that it will be busted by 2024, five years earlier than previously believed. IPAB can't change Medicare coverage eligibility rules or refuse specific treatment options based on cost. It's only option, really, is to cut payments to providers, and that is precisely what it will do. It's fair to worry about how this powerful group of bureaucrats might wield its authority. Yet even if IPAB wields its budget axe like Lizzie Borden, it's an open question whether it could cut payments to providers enough to stabilize Medicare without driving doctors away for good.

The reform law also includes Accountable Care Organizations, Medicare's experimental new payment model that will begin next year. The goal is to save money while driving quality by encouraging more efficient, team-based care. No one knows if it will work but skeptics are legion (and I'm among them). In any event, all estimates about the expected efficacy of ACOs are pure speculation. Attempts to turn Medicare into a quality-driving, cost-cutting machine place us almost entirely into uncharted waters. No one knows how much these measures will save Medicare, if anything.

The Republicans' plan, meanwhile, is simple and drastic. It converts Medicare's basic function as a direct purchaser of healthcare services into a processor of vouchers that beneficiaries would use to buy insurance on the private market. Because the value of the vouchers would be tied to inflation and capped, regardless of the actual costs of care, the plan has the virtue of cost certainty as long as future lawmakers don't mess with the cap. And since Medicare's historic profligacy may very well be the biggest single factor driving medical inflation, such a change could do more than anything else to bend healthcare's cost curve down.

Yet it is no exaggeration to say that the Ryan plan ends Medicare "as we know it." Medicare would no longer provide medical benefits, only "premium supports" to private insurers who would (one hopes) provide the benefits. But as anyone with private market insurance knows, such plans come with pretty tight cost controls that would be called rationing if Medicare tried them (and which it is legally prohibited from enacting). How else are private insurers supposed to make money while fighting each other for market share when Medicare can't break even despite its monopoly status?

The Republicans' plan, then, would have unelected private sector bureaucrats carry out this unpleasant rationing business, while the Democrats would let unelected government bureaucrats do it. Medicare might still go broke under the Democrats' plan. Beneficiaries might go broke under the Republicans'. The real debate is not over whether to ration but over who should dole out the rations.

And under any plan, you, doctors, will be paid less.

Bob Keaveney is the editorial director of Physicians Practice. What do you think of competing plans to "save" Medicare? Tell us about it in the comment box below. Unless you say otherwise, we'll assume that we're free to publish your comments in upcoming issues of Physicians Practice, in print and online.

This article originally appeared in our blog, Practice Notes; and was published in the July/August 2011 issue of Physicians Practice.