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Obama Rejects Medicare Voucher and Turns to a Beefed-up IPAB Instead

By Jane Norman, CQ HealthBeat Associate Editor

April 13, 2011 -- President Obama would give additional power to an independent advisory board—one already highly unpopular with Republicans—to wring additional savings out of Medicare, according to a fact sheet the White House released in connection with the president's speech outlining his deficit reduction proposal.

A senior administration official, speaking on background in a call with reporters, also said the president does not support an increase in the eligibility age for Medicare. Obama "does not believe that part of strengthening and reforming Medicare requires raising the retirement age or ending the basic fee-for-service agreement," the official said.

In his remarks at George Washington University, Obama touched on what's essentially the unfinished work of the health care law—the need to curb the deficit by driving government health care spending even lower than what was enacted in the overhaul. When fully implemented, the law over time will expand access to millions of uninsured Americans and save $1 trillion. But the insurance industry and other critics have hammered away at the measure for not doing more to control costs down the line.

The president drew a sharp line between his approach to Medicare and Medicaid and that of House Republicans. "Their plan lowers the government's health care bills by asking seniors and poor families to pay them instead," Obama said. "Our approach lowers the government's health care bills by reducing the cost of health care itself."

Overall, the deficit reduction proposal calls for creation of a "debt failsafe" trigger that would implement across-the-board spending cuts. And consistent with enforcement mechanisms that prior presidents have put in place, Obama's trigger would not apply to "Social Security, low-income programs or benefits to Medicare enrollees," the fact sheet says. Triggers used by past administrations have affected provider payments, however.

In addition, the administration advocates replacing the current federal matching formula for making Medicaid payments to states. The president instead is calling for "a single matching rate for all program spending that rewards states for efficiency" and automatically increases if state costs rise in a recession.

A senior administration official said that the rate would vary by state, but cautioned that the idea is part of a framework for discussion rather than a complete legislative proposal. The question of whether maintenance-of-effort requirements would continue is not addressed.

Nonetheless, this idea contrasts with Republican proposals that would block grant Medicaid payments to states, which GOP lawmakers say would free up the states to find solutions that work best for them. The administration says the result instead would be that states would receive a third less in Medicaid funds by 2021 and that 15 million people could be left without health care coverage, including seniors in nursing homes.

Obama says no to Medicare vouchers

In his approach, the president rejects a voucher system for Medicare proposed by House Budget Committee Chairman Paul D. Ryan, R-Wis. Administration aides said the Ryan plan would harm seniors and force baby boomers in their 40s and 50s to pay up to $6,000 a year more for Medicare, after weathering the current economic downturn.

Administration officials say they want to strengthen Medicare and Medicaid over the long term even as they set a goal of achieving $4 trillion in overall deficit reduction in 12 years or less.
A chunk of that money would come from two main entitlement programs, Medicare and Medicaid, whose health care costs are main drivers of long-term deficits.

In addition to the savings projected because of enactment of the health care law (PL 111-148, PL 111-152), Obama wants to save $340 billion more by 2021 and $480 billion by 2023, including proposals already included in his budget proposal. He said he aims for more than $1 trillion in savings in the subsequent decade from Medicare and Medicaid.

Obama would strengthen the 15-member Independent Payment Advisory Board (IPAB), which was created in the health overhaul to help rein in Medicare cost growth. The board is charged with analyzing the causes of Medicare spending increases. When Medicare growth per beneficiary exceeds the growth in the GDP per capita plus one percent, IPAB is supposed to recommend to Congress ways to reduce growth and meet that target.

The IPAB's recommendations become law unless the House and the Senate each adopt, by a three-fifths majority, a resolution to block them. If the president vetoes the resolution, two-thirds of each chamber would have to vote to override the veto in order to block the recommendations.

Obama would set a tougher new target for Medicare growth per beneficiary of GDP per capita plus 0.5 percent, and give IPAB "additional tools" to improve the quality of care while at the same time reducing costs.

Gail Wilensky, a former administrator of the predecessor agency to CMS, said the 0.5 percent goal was "quite aggressive - I'm a little surprised it's quite that aggressive."

The board would be allowed, for example, to promote value-based benefit designs, which are explicit plan incentives, so that more seniors would take advantage of prevention services.

"It's an example of how we can strengthen and reform Medicare without undermining it as we know it today," said the senior administration official.

The IPAB also would be given "additional enforcement mechanisms" such as "an automatic sequester as a backstop," the fact sheet says, thus apparently requiring payment reductions.

"The newest proposals are focused on reducing pharmaceutical spending through good old fashioned price pressure," said Dan Mendelson, CEO of Avalere Health and a former Clinton administration official. He added that it was "hard to see where the IPAB savings would actually come from," but the two largest possibilities would be hospital and physician payments. IPAB does have some short-term carveouts for providers, such as hospitals who are exempted from cuts or other impacts; the president's fiscal commission recommended those carveouts be eliminated.

A senior official said the idea is there would be "some expansion" of IPAB and the sequestration power would help if the IPAB was stalled or Congress didn't act. "It does give it greater enforcement powers 2018 and beyond," the official said.


Even in its current form, the IPAB has been a target for Republicans, however. "The IPAB is basically the price control mechanism that they put in Medicare which, basically, I think, ends up rationing care," Ryan, who wants to repeal the advisory body, recently told the American Enterprise Institute.

That desire may also cross party lines because many lawmakers are reluctant to give up their own control over Medicare. A House bill to repeal IPAB (HR 452) sponsored by Rep. Phil Roe, R-Tenn., has picked up 68 cosponsors, including three Democrats. A Senate version (S 668) sponsored by Sen. John Cornyn, R-Texas, has 14 cosponsors, all Republicans.

Cornyn and Sen. Orrin G. Hatch, R-Utah, blasted the IPAB idea in a joint statement and said it's essentially a panel of unelected bureaucrats making key health care decisions for seniors. "So much for the president's claim that the health law was entitlement reform," they said. "Today, the president has once again punted the tough decisions to tackling soaring health care costs."

Karen Davis, president of the Commonwealth Fund, however, called the IPAB an "important strategy" for saving money in Medicare depending on how it's structured.

Families USA, a group highly supportive of the health care law, praised the "balanced framework" put forth by Obama. "The president's proposal is designed to moderate health care costs, while the House Republican proposal does nothing to moderate costs – but rather it shifts costs onto the shoulders of those least able to bear them," said Ron Pollack, executive director.

Finance Committee Chairman Max Baucus, D-Mont., said that Obama's plan is in "stark contrast" to the Ryan plan. "Over the course of the coming weeks and months, we will carefully build upon our country's shared priorities and make the difficult decisions we need to get this done," said Baucus. "We should begin with the assumption there will be at least some steps we have to take together that would not be the preference of each of us alone."

What's missing from the president's plan on Medicare, said Wilensky, is some element of responsibility for the Medicare enrollee to participate more in reducing costs. And she said she's never cared much for the IPAB because the board, once appointed, "is not accountable to anybody."

Republican Sen. Michael B. Enzi, R-Wyo., said he wanted more on how to change Medicaid. "Rather than vague promises about more efficiency and accountability, the president should have committed to ending burdensome regulatory requirements and providing states with the flexibility they need to reduce Medicaid spending," said Enzi.

The president also backs changes in Medicaid to produce more efficient and higher quality care for the so-called dual eligibles, people who qualify for both Medicare and Medicaid and account for 40 percent of Medicaid spending.

On prescription drug spending, Obama wants to leverage Medicare purchasing power in line with recommendations from his fiscal commission, by speeding up the availability of generic biologics and banning brand-name drugmakers from entering into "pay for delay" agreements with generic drugmakers. A plan for Medicaid management of high prescribers and users of prescription drugs is mentioned.

Also, the administration called for clamping down on states' use of provider taxes to lower spending without extending additional Medicaid services, recovery of erroneous payments from Medicare Advantage and an establishment of upper limits on Medicaid payments for durable medical equipment.

But the president said he will not change the essential nature of either entitlement program. "I will preserve these health care programs as a promise we make to each other in this society," he said.

"I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves. We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations."

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