The Affordable Care Act's Rate-Setting Won't Work

Experience tells me the Independent Payment Advisory Board will fail.

HOWARD DEAN

July 28, 2013

Continuing efforts by congressional Republicans to "defund" further implementation of the Patient Protection and Affordable Care Act, even if it takes shutting down the federal government, are willfully destructive. As Sen. Richard Burr (R., N.C.) told the press last week, "I think it's the dumbest idea I've ever heard . . . as long as Barack Obama is president the Affordable Care Act is gonna be law."

Clearly, the foremost achievement of President Obama's first term is the Affordable Care Act, and when fully implemented the law will move America closer to universal health coverage—something many progressives have sought for years. Like it or not, the law—at least its foundation—is here to stay, and lawmakers ought to focus over the next year on ensuring a relatively smooth implementation.

Although I've been critical of many components of the law, there is still much to applaud. Accountable Care Organizations could eliminate duplicative services and prevent medical errors while seeking to reduce costs for individuals, particularly if their creation ultimately leads to the end of fee-for-service medicine, as I believe it will. In addition, the Health Insurance Marketplace exchange systems, once implemented, will provide individuals with competitive plan options based on price, services, quality and other factors. Even more important, the exchanges will make the process of securing health insurance much easier and more transparent for millions who don't currently have it.

The administration's decision to delay implementation of the employer mandate until 2015 will help funnel individuals and families who do not get insurance through their employer into the exchanges. While this may benefit the participating insurers in the short term, this also accelerates the trend toward divorcing health care from employment. This is not a radical idea, and was even proposed by Sen. John McCain in his 2008 presidential campaign. That development will lead to the end of job lock for workers and contribute to a more competitive American business community in the longer run.

That said, the law still has its flaws, and American lawmakers and citizens have both an opportunity and responsibility to fix them.

One major problem is the so-called Independent Payment Advisory Board. The IPAB is essentially a health-care rationing body. By setting doctor reimbursement rates for Medicare and determining which procedures and drugs will be covered and at what price, the IPAB will be able to stop certain treatments its members do not favor by simply setting rates to levels where no doctor or hospital will perform them.

There does have to be control of costs in our health-care system. However, rate setting—the essential mechanism of the IPAB—has a 40-year track record of failure. What ends up happening in these schemes (which many states including my home state of Vermont have implemented with virtually no long-term effect on costs) is that patients and physicians get aggravated because bureaucrats in either the private or public sector are making medical decisions without knowing the patients. Most important, once again, these kinds of schemes do not control costs. The medical system simply becomes more bureaucratic.

The nonpartisan Congressional Budget Office has indicated that the IPAB, in its current form, won't save a single dime before 2021. 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, including my own state of Vermont.

If Medicare is to have a secure future, we have to move away from fee-for-service medicine, which is all about incentives to spend more, and has no incentives in the system to keep patients healthy. The IPAB has no possibility of helping to solve this major problem and will almost certainly make the system more bureaucratic and therefore drive up administrative costs.

To date, 22 Democrats have joined Republicans in the House and Senate in support of legislation to do away with the IPAB. Yet because of the extraordinary partisanship on Capitol Hill and Republican threats to defund the law through the appropriations process, it is unlikely that any change in the Affordable Care Act will take place soon.

The IPAB will cause frustration to providers and patients alike, and it will fail to control costs. When, and if, the atmosphere on Capitol Hill improves and leadership becomes interested again in addressing real problems instead of posturing, getting rid of the IPAB is something Democrats and Republicans ought to agree on.

Mr. Dean, governor of Vermont from 1991 to 2002 and a former chairman of the Democratic National Committee, is a strategic adviser to McKenna Long & Aldridge LLP.

A version of this article appeared July 29, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: The Affordable Care Act's Rate-Setting Won't Work.

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