CBO Projection Problems Raises Doubts About IPAB

As with its treatment of the CLASS Act, CBO’s savings score of IPAB was used to lower the net cost of the ACA, thus easing its passage.
Demian Brady
June 30, 2017

The Centers for Medicare and Medicaid Services (CMS) Chief Actuary is soon expected to issue a report projecting the estimated growth in spending on Medicare. If that rate exceeds an annual target set in the Patient Protection and Affordable Care Act (ACA), a controversial process will be triggered to institute cost-savings. The ACA created an un-elected Independent Payment Advisory Board (IPAB) to recommend cuts to Medicare. While the goal of seeking savings for taxpayers is admirable, the IPAB is a flawed mechanism, and an inadequate substitute for the type of lasting reforms needed in Medicare. Moreover, given the level of uncertainty surrounding the implementation of IPAB, taxpayers should be skeptical of the level of savings that it’s estimated to achieve.

The grand idea of IPAB was to create a process to fast-track savings to Medicare. Former Obama ACA budget director Peter Orszag boasted, “This institution could prove to be far more important to the future of our fiscal health than for example the Congressional Budget Office. It has an enormous amount of potential power.” So far, it hasn’t worked out that way. Congress appropriated $15 million for the IPAB starting in 2012, with future funding adjusted each year by inflation. After $10 million was rescinded from the 2012 budget, the Congressional Budget Office (CBO) estimated that the administration of IPAB would cost $137 million from 2013 to 2022. The President was to appoint 15 members to the Board, with the consent of Congress. However, no appointments were ever made.

The action required byby the Board would be triggered if annual growth in Medicare per capita expenditures, as projected by the CMS Actuary exceed targets established in the ACA. Once set in motion, the unaccountable Board would have authority to recommend savings, but is statutorily restricted by ACA language from making changes that would raise revenues, increase premiums, restrict benefits, or alter eligibility. This leaves in place likely options to cut payments to health care providers through Medicare and prescription drugs. The recommendations would then go to Congress on a fast-track process for consideration. Congress has the option to come up with its own proposals that match the savings target or reject IPAB’s recommendations. If Congress fails to act, or if the President successfully vetoes a rejection of the recommendations, the cuts would take effect automatically.

If there is no Board, or if it fails to make recommendations, the Secretary of Health and Human Services is supposed to automatically take steps to achieve the savings target, thus again circumventing Congress. This has raised questions about the constitutionality of the program. Congress is precluded from delegating legislative authority to an executive agency. Adding to the uncertainty of the targeted savings, once triggered, IPAB may be ripe for judicial review of legal challenges. Or the Secretary may deem the law unconstitutional and decline to implement it.

The uncertainty regarding the IPAB scheme is a reminder of the uncertainty regarding budget projections. These estimates are often trumpeted and echoed as if they were verified facts. Rather they represent a reference to possible outcomes that are dependent upon multiple, interacting variables and assumptions. We saw evidence of this in the CLASS Act plan in the ACA to establish a long-term care entitlement; CBO’s savings score was used to lower the net cost of the ACA and ease its passage. IPAB served a similar purpose while the ACA was being considered. Yet, different assumptions in CBO’s baseline, led to different scores for each year, as noted by Charles Blahous of the Mercatus Center:

When the CMS Medicare Actuary’s office originally projected the effects of the ACA, it found that savings would be required from IPAB from years 2015–19 inclusive but not afterwards. When Medicare finances were reestimated for the 2011 Trustees’ report, however, the Actuary’s office found that additional savings from IPAB would be required.74 CBO has seen similar fluctuations in its projections for the savings required of IPAB. In February 2011, CBO projected that IPAB would be called upon to deliver $14 billion in savings over 2012–21. Just one month later in March, CBO projected that no cost savings would be needed from IPAB over that period.

The CLASS Act was eventually repealed because it turned out to be financially unsustainable, and, for several reasons, it is unclear what savings would actually be achieved through IPAB:

  • It is unclear what recommendations would be proposed, either by IPAB or the Secretary, or whether they would be effective.
  • It is impossible to determine the fate of proposals that are contingent on future actions of Congress.
  • Although the ACA blocks Congress from adjusting the IPAB fiscal targets in any other legislation, there is an option to waive this requirement via a super-majority vote in the Senate.
  • Even though the fast-track rules are written into the ACA as law, Congress considers them as rules for each chamber that can be modified by unanimous consent, suspension of the rules, or by special rules.
  • Congress has a long history of skirting cuts. For one such related example, the Balanced Budget Act of 1997 enacted a Sustainable Growth Rate to slow the annual growth in Medicare. For the next 18 consecutive years, Congress voted to delay the reductions before finally repealing the provision.

Even Governor Howard Dean was dubious of CBO’s original estimate:

As everyone in Washington knows. But less frequently admits, CBO projections of any kind – past five years or so – are really just speculation. I believe the IPAB will never control costs based on the long record of previous attempts in many of the states, include my own state of Vermont.

Savings are needed to address the unfunded liabilities of Medicare, as well as the other major entitlement programs. But policymakers should proceed in a way that is accountable to taxpayers, and that opens the door to significant, lasting reforms, rather than tinkering around the edges with piecemeal and limited options. And, to underscore Governor Dean’s observation, Congress should also look for ways to enhance and improve the way legislation is scored to provide more accurate assessments of policy proposals.

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