Tomorrow the Medicare Trustees are expected to release their annual report. Each year with the release of the Medicare Trustees report, the Office of the Actuary at Health and Human Services sends a letter to the head of the Centers for Medicare and Medicaid with a determination - based on the Trustees' report - as to whether or not anticipated five-year per capita Medicare spending growth exceeded the estimated target growth rate, thus triggering IPAB under the ACA.
When the Office of the Actuary sends its letter to Seema Verma at CMS this week, they will be using data for years 2015 to 2019. The target growth rate is equal to the average of the projected 5-year average growth, ending in 2019, in the Consumer Price Index for All Urban Consumers (all items; United States city average) and the medical care expenditure category of the Consumer Price Index for All Urban Consumers (United States city average).
If the Medicare per capita spending growth rate does not exceed the target growth rate, as was the case in 2013, 2014, 2015 and 2016, the Office of the Actuary will advise CMS of that determination and IPAB is not deployed. If, however, the Actuary determines that the Medicare per capita spending growth did exceed the target, they must also provide CMS with a savings target - a reduction in Medicare spending - for the final year of the five years included in the analysis, which for this year's report would be 2019. The savings target in 2019 must be the lesser of 1.5 percent or the excess of the average Medicare per capita spending growth rate over the target growth rate.
Using data from the 2016 Medicare Trustees report, it would appear that 2017 is the year that IPAB get triggered:
If nothing had changed since the 2016 Medicare Trustees last report, the Actuary would set a saving target of about 0.12 percent (or about $780 million) for implementation year 2019. However, CPI-U has been below last year’s forecast while CPI-U Medical Care has been above. Using BLS reported data in lieu of the Medicare Trustees projection (and leaving CPI-U and CPI-U Medical Care forecasts for 2018 and 2019 alone) the savings target could widen to 0.4 percent (or about $2.6 billion), assuming no change to Medicare per capita spending forecasts.
If, as expected, the Actuary declares IPAB triggered, a series of events are set in motion to develop proposals to cut Medicare spending. Until 2020 providers of services and supplies that are already subject to a payment reduction courtesy of the ACA (like hospitals and LTCHs) will not be a source of savings.
A savings proposal must include reductions to Medicare Parts C and D. Those reductions can include:
- Payments for administrative expense, “including profits”
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Removal of high bids for prescription drug coverage from the calculation of the national average monthly bid amount
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Reduction in performance bonuses
To identify and propose savings to Medicare pursuant to the IPAB provisions of the ACA, a 15 member board is to be appointed and provided the resources necessary to develop a plan.
The problem is Congress defunded IPAB as part of the FY 2017 spending deal.
No funding, no 15-member board.
The ACA does include a provision whereby the Secretary of HHS will develop a plan if the Board fails to do so. The conventional wisdom is that Secretary Price will be responsible for identifying and proposing savings to Medicare in the face of Congress’s decision to defund IPAB.
Given the lack of funding and assuming the Trump administration has an interest in actually implementing this provision of the ACA if triggered, the timeline for identifying and implementing the required savings would take the rest of 2017 and all of 2018.
Secretary Price’s responsibility would be to identify between $780 million and $2.6 billion in savings in the Medicare Program. While a proposal must include savings from Medicare Advantage and Part D, the money does not need to come entirely from those programs. Given their popularity, we anticipate every effort will be made to minimize the impact.
Regardless, $780 million is not a lot of money when it comes to the $650 billion Medicare program. Given this administration's desire to downsize the government, look for changes in adminstration and in less essential parts of the Medicare program, assuming IPAB gets triggered.
Call with questions.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
