Health bill holds key to control seniors’ costs

Health bill holds key to control seniors’ costs
By Edward Luce and Anna Fifield in Washington
Copyright The Financial Times Limited 2010
Published: March 8 2010 18:46 | Last updated: March 8 2010 18:46
http://www.ft.com/cms/s/0/5414a064-2ae1-11df-886b-00144feabdc0.html


Barack Obama took to the road on Monday in a frenetic itinerary to drum up a last-minute surge in support for healthcare reform.

The outcome of the vote, which Mr Obama wants passed by the middle of next week before he takes off for Indonesia and Australia, could determine the future of his presidency.

“How much higher do premiums have to rise until we do something about it?” Mr Obama asked an audience in Pennsylvania. “How many more Americans have to lose their health insurance? How many more years can the federal budget handle the crushing costs of Medicare and Medicaid?”

Mr Obama’s fate aside, many healthcare economists believe there are key elements in the 2,700-page healthcare bill that could make the difference between US bankruptcy and solvency in coming decades.

Of these, the creation of an independent commission to set payments for Medicare, the cripplingly expensive healthcare system for pensioners, is probably the most radical – and under-appreciated.

US entitlement spending is forecast to account for the entire US budget by the middle of the century. Of this, Medicare is by far the largest item. Under the bill, a new Medicare commission, known as the Independent Payments Advisory Board, would have the power to impose steep annual cuts in Medicare payments against forecast healthcare inflation.

Much like a minor shift in the direction of a supertanker, the board’s initial changes would look deceptively incremental. Over time, however, a fully empowered board could help transform America’s chronic fiscal challenge. Government spending accounts for roughly half of annual $2,500bn (€1,835bn, £1,652bn) health spending, of which Medicare is by far the largest portion.

“History suggests that if you phase something in, it works,” Peter Orszag, Mr Obama’s budget director, told the FT. “The commission would have the power to propose changes in the growth targets [for healthcare spending] which Congress would have to approve or propose equivalent cuts. I don’t think people have appreciated just how big a game changer this could be.”

So important is this measure to Mr Obama that it was the only specific proposal that came from the White House on healthcare in 2009. It was only last month that Mr Obama finally proposed his own detailed healthcare bill – much along the lines of the existing Senate bill.

The powers of the proposed board would resemble the Base Closure and Realignment Commission – an independent body that recommends to Congress which military bases to close. Unlike normal bills, Congress can only vote Yes or No. This deprives lawmakers of their normal powers to insert special deals, but with the knowledge their opponents will also lose that scope.

IPAB’s powers would be similar. If Congress rejected a proposed spending cut, it would have to propose an equivalent cut or the original IPAB proposal would automatically go through. It is highly unusual for Congress to cede such powers. Other examples include the creation of the Federal Reserve in 1913, where Congress forfeited the right to set monetary policy.

“Right now, Medicare is run by 536 chief executive officers [members of Congress plus the president],” says David Cutler, a healthcare economist at Harvard University. “This could transform the whole management of it. It is potentially very far-reaching.”

Others, aware of how jealous Congress can be of its powers, are more circumspect. They point out that the board’s powers will also depend on who the president appoints to head it, assuming it goes through.

“One should understand that slowing the spending momentum in an industry as large as the GDP of the UK will take time,” says Henry Aaron, a healthcare economist at Brookings. “IPAB is one among many elements of the Senate-passed bill that hold out enormous promise for slowing the growth of healthcare spending – not today or this year or next, but over the long haul.”