Obama's Medicare proposal: How would it work?

The GOP plan drawn up by Rep. Paul Ryan would in essence turn Medicare into a voucher program. On Wednesday, Obama outlined his vision, which takes part of the health-care reform law a step further.

President Obama’s debt-relief plan differs profoundly with Republicans' on the fate of Medicare, the giant entitlement program that funds health care for America’s senior citizens.

The GOP long-term fiscal program drawn up by Rep. Paul Ryan (R) of Wisconsin would in essence turn Medicare into a voucher program, with the government providing a subsidy for seniors to purchase their own health insurance from private providers.

Mr. Obama derided that approach, saying on Wednesday that it “leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs.”

But the fast-growing Medicare program is the largest driver of the nation’s long-term fiscal problems. The US budget can’t be put back in balance without big changes to how it pays doctors and hospitals, and what it pays for. How would Obama accomplish those changes?

As outlined on Wednesday, a central aspect of the president’s plan would be to double down on one of the most controversial aspects of his health-care reform law: an independent board with the power to slow costs in the Medicare system if the program’s spending rises faster than set limits.

Under the health-care law, this Independent Payment Advisory Board (IPAB) would start to work if Medicare spending rises faster than the annual growth of the US gross domestic product, plus 1 percent.

Under the plan outlined by Obama on Wednesday, the board would act if Medicare spending rises faster than GDP plus 0.5 percent.

As it is now structured, the IPAB is supposed to be an organization of 15 members appointed by the president and confirmed by the Senate. The health-care reform law calls for the board to have varied geographic and professional representation, with experts in health-care finance, hospital management, and health insurance, as well as physicians.

If Medicare spending surpasses its targets, these people are supposed to put their heads together and come up with ways to cut the program so the costs remain under the set threshold. Their recommendations are then submitted to Congress.

If lawmakers vote to approve them, and they are signed by the president, they become law. If Congress does not vote on the recommendations, they become law. If Congress votes the recommendations down, but the president vetoes what Congress did, and Congress cannot override the veto, they become law.

That is the way the board is structured under the current law, anyway. One thing that makes it controversial is that it takes away some of Congress’s power to deal with Medicare issues. Former Obama budget director Peter Orszag has said the board might be “the largest yielding of sovereignty from the Congress since the creation of the Federal Reserve.”

The board is prohibited from making recommendations that would ration health-care procedures, increase taxes, change Medicare benefits, or make the program more expensive for beneficiaries, according to an analysis of the current law by the Kaiser Family Foundation.

What would the board be able to change? What things Medicare pays for, what it pays to providers, and the program’s structure, among other things.

Since a big target of spending reductions probably would be things that supply income to doctors, hospitals, and other providers, the IPAB – even in its current form – is intensely unpopular in the medical establishment. Changing or repealing it is one of the American Medical Association’s highest priorities, for instance.

Other health-care providers have the same goal.

“America’s hospitals support the repeal of [the president’s payment board], because its existence permanently removes Congress from the decision-making process, and threatens the important dialogue between hospitals and their elected officials about the real health care needs of their communities,” said Rich Umbdenstock, president and CEO of the American Hospital Association, in a statement following Wednesday’s debt speech by Obama.

Patient organizations that supported Obama’s health-care reform effort last year generally applauded his Medicare proposal, however.

“In Medicare, the House Republican proposal shifts costs onto the shoulders of seniors who will see their out-of-pocket spending skyrocket and will find that burden unaffordable,” said Ron Pollock, executive director of the consumer organization Families USA, in a statement. “The President’s approach makes much more sense, and we appreciate the directions of his proposal.”