Obamacare to the rescue?

• Author: Riczo, Steve
• Position: Public Policy

ECONOMISTS for decades have pointed to spiraling health care costs as a major threat to the U.S. economy. Massive government funding of the industry began with the advent of Medicare and Medicaid in the mid 1960s when health care costs comprised five percent of our nation's gross domestic product It is 18% today. If costs continue to grow at historic rates, health care will comprise 34% of GDP in 2040. This expense places an unsustainable burden not only on government budgets, but on businesses trying to compete in a global market and on individuals. Medical bills are the No. 1 reason for personal bankruptcies in the U.S.

The Patient Protection and Affordable Care Act attempts to address three significant problems that have existed for years by getting more individuals covered (45,000 people die each year because they do not have health insurance); covering those with preexisting conditions; and containing overall costs.

Figuring to play a big part in ObamaCare is the Independent Payment Advisory Board (IPAB), a Federal agency created by the Affordable Care Act. IPAB will consist of 15 members with health care system expertise who will be appointed by the president--subject to Senate confirmation. It was established as a "backstop" to achieve specified savings in the Medicare program without affecting coverage or quality should government projected per capita growth rates in the program exceed spending targets.

However, it is very likely that its influence will extend well beyond Medicare and permeate throughout the entire health care system since most large commercial health insurers tend to follow the lead of Medicare's cost-containment efforts. Furthermore, IPAB's recommendations will be binding unless overruled by a super-majority vote of Congress, in which case Congress will be required to utilize a fast-track process to develop and implement its own ideas to achieve the same level of savings.

With the enormous amount of money at stake and many powerful health care special interests--hospitals, physicians, pharmaceutical companies, nursing homes, etc.--lobbying to satisfy their insatiable appetite for more of it, IPAB will have sufficient independence to make needed cuts. Indeed, a number of special interest health care organizations are opposed to IPAB as they realize its potential to change the status quo.

Similar efforts to rein in Federal spending have worked in the past concerning the defense industry. The Base Realignment and...