Health Care Cost Reform Rediscovers an Old Progressive Idea
Ezra Klein has an interesting post — a "sad commentary" he says, noting that the recently signed health reform bill had to resort to an mechanism largely independent of Congress to help control costs in Medicare. It’s called the Independent Payment Advisory Board (IPAB).
The IPAB is a 15-person, full-time board composed of health-care experts and stakeholders. Members need to be confirmed by the Senate and will serve six-year terms, with one possible reappointment. But the important thing isn’t who serves. It’s how they vote. Or, as the case may be, don’t vote.
If Congress approves the board’s recommendations and the president signs them, they go into effect. If Congress does not vote on the board’s recommendations, they still go into effect. If Congress votes against the board’s recommendations but the president vetoes and Congress can’t find the two-thirds necessary to overturn the veto, the recommendations go into effect. It’s only if Congress votes them down and the president agrees that the recommendations die. “I believe this commission is the largest yielding of sovereignty from the Congress since the creation of the Federal Reserve,” says Peter Orszag, who’s been one of the idea’s most enthusiastic supporters.
The board will propose packages of reforms that bring Medicare in line with certain spending targets. Those reforms won’t increase cost sharing or taxes and they won’t change eligibility or benefits. Instead, they’re reforms of what Medicare pays for and how it pays for it.
Ezra is glad this provision survived, but he laments that Congress had to resort to it. I agree this is an important, worthwhile feature, but I don’t agree that we should lament the necessity of Congress passing off this responsibility to an independent Board. There’s nothing "sad" or "weird" about legislatures using this approach.
A hundred years ago, progressives and market proponents both realized that if you have monopolies or near-monopolies providing essential public services, like electricity, you can’t allow them to charge monopoly prices or limit supply. So it made sense to control the monopolists power and put the rate-making authority in an expert regulatory commission that was relatively independent of undue political influence. So we created institutions called Public Utilities Commissions (or public service commissions, utility regulatory boards, and so on). In California, the state constitution even placed the PUC in San Francisco, which in 1900 was a day away from those corrupt legislators in Sacramento.
Progressives thought this a good idea because someone responsible for protecting consumers and promoting the public interest should make sure the rates utilities charged were just and reasonable. But "just and reasonable" also meant that utilities were entitled to recover all costs reasonably incurred by the utility in providing universal service and meeting the regulated standards of service, and whatever those costs were, consumers should pay them. Hence the twin pillars of the "regulatory bargain" of utility regulation.
The independence notion arose because rates had to be set administratively, since a competitive market would NOT work. You wouldn’t want economically powerful utilities using their influence over legislators to set rates and limit service to rip off consumers. And once upon a time, legislators even understood it might be helpful to politicians to have these independent agencies taking the hit for raising rates when rising costs required that.
So independent regulatory commissions and boards have been doing this for a century. There’s nothing new here.
The only reason some may find this strange is because they still think of our health care system as some type of competitive market, capable of fairly allocating care and setting sustainable prices through efficient competition. That’s nuts.
Large segments of the system no longer function within a competitive market framework, if they ever did. When you see the system in terms of quasi-utilities providing necessary public services in a non-competitive framework, then relying on something like an IPAB, and not Congress, makes sense. And the only way the IPAB can do a decent job is to recognize the essentially regulatory paradigm it’s in.
(h/t to DeLong.) I agree we shouldn’t explain this to the current Supreme Court (or the Texas School Board, for that matter).