House Set to Target Deficit-Reducing Parts of ACA
Update (6/12/15): A new CBO score estimates that repealing IPAB will cost $7.1 billion over ten years, with all of the cost recorded after 2021. The text has been updated to reflect this score.
The House Ways and Means Committee today will markup several bills, including repeal of the Independent Payment Advisory Board (IPAB) and the medical device tax. You can find out more about the markup on the Ways and Means Committee website.
Unlike full ACA repeal, these policies stand a chance of overcoming a Presidential veto due to the bipartisan support already exhibited for each: as of this writing, the medical device tax repeal bill in the House (HR 160) has 281 cosponsors while the IPAB repeal bill (HR 1190) has 233 cosponsors. However, repealing these policies without offsetting savings from health care or revenue would be a mistake. IPAB, in particular, should not be abolished without a replacement that can similarly restrain long-term Medicare cost growth.
The Joint Committee on Taxation (JCT) has estimated that repealing the 2.3 percent medical device tax would cost $26.5 billion over ten years. However, JCT estimates that the amendment in the nature of a substitute that is expected to replace the bill in markup will reduce revenues by $24.4 billion over the same period.
Although the original co-sponsors of the bill, Reps. Erik Paulsen (R-MN) and Ron Kind (D-WI), said they expect the bill to be offset, no cost-savers have been produced yet. We suggested bundling payments for inpatient care as one option, which not only would produce enough savings to fully offset repeal but also achieve much of its savings from providers cutting their medical device costs. Thus, the medical device industry would still be asked to contribute to deficit reduction, but in a more efficient manner. There are many other options available as well, as we showed at the time and in our latest health care options.
|Potential Offsets for Medical Device Tax Repeal|
|Memo: Repeal Medical Device Tax||-$24 billion|
|Expand bundled payments for inpatient care||$25 billion|
|Reduce state Medicaid provider taxes to 4.5 percent of patient revenues||$35 billion|
|Reduce Medicare coverage of hospital "bad debts"||$30 billion|
|Encourage use of generic drugs by low-income Part D beneficiaries||$20 billion|
|Equalize payments for similar services performed in different settings||$20 billion|
|Increase Medicare Advantage coding intensity adjustment||$20 billion|
|Increase Medicaid drug rebates||$10 billion|
|Move up "Cadillac tax" by one year to 2017||$35 billion|
|Eliminate tax breaks for oil and gas companies||$40 billion|
|Increase cigarette tax by 50 cents||$35 billion|
|Close "John Edwards/Newt Gingrich" loophole||$35 billion|
|Limit tax benefit of retirement accounts||$30 billion|
|Eliminate tax exclusion for private activity bonds||$30 billion|
|Require Social Security numbers for refundable portion of child tax credit||$25 billion|
|Eliminate the mortgage interest deduction for second homes and yachts||$15 billion|
Source: CBO, JCT
IPAB is a board to be comprised of Medicare experts charged with recommending provider payment changes to reduce Medicare spending in years when its per-beneficiary growth exceeds Gross Domestic Product (GDP) per capita growth plus 1 percentage point. These recommendations then automatically take effect unless Congress either replaces them with equivalent savings by majority vote or blocks them from going into effect by a three-fifths vote.
Due to the slow Medicare cost growth projected in the near term, the Congressional Budget Office (CBO) estimated in March that IPAB would only be called on to make $1 billion of cuts in 2025, although that may have changed with the recent passage of the physician payment law, which increased Medicare spending. Nonetheless, the ten-year cost of repeal is higher because CBO uses what's known as "probabilistic scoring." CBO explained in its score that "The IPAB mechanism, however, is essentially a one-sided bet: The resulting target can be only zero or savings; the IPAB cannot be instructed to increase spending." As a result, CBO incorporates the possibility that Medicare spending could grow faster than the current central projection to estimate the cost of repeal. Thus, they come up with a ten-year cost of $7 billion even though IPAB is only expected to make $1 billion of cuts by 2025. These costs are all recorded after 2022, growing to $3.1 billion by 2025.
Importantly, though, taking into account only the modest ten-year cost of IPAB repeal would be very shortsighted, since the Board could be called on to make much larger changes over the long term. IPAB essentially serves as a failsafe mechanism to ensure Medicare costs do not grow too rapidly over the long-run. Ideally, it should only be repealed if replaced with an alternative mechanism to achieve the same goal. If policymakers are unwilling to limit the growth rate of Medicare in statute, they should identify offsets that would help to bend the health care cost curve and generate much larger savings than what IPAB repeal would be estimated to cost over ten years on paper.
These two bills are not the only ACA-related ones that risk increasing deficits. Repealing the Cadillac tax has garnered some bipartisan support, but it would be very costly in the long term, undermine efforts to control health care costs system-wide, and potentially further stifle middle-class real wage growth and exacerbate inequality. Many lawmakers have also proposed either repealing the employer mandate or raising the number of hours to define full-time work for purposes of the mandate from 30 to 40 hours, both of which would, by themselves, increase deficits.
It is a worrying trend that the ACA changes most likely to pass are those that add on to the debt - and lawmakers have shown no qualms about ignoring costs recently.