Controlling Medicare Costs—IMAC

The CBO has analyzed some of the suggested methods for controlling health care costs, and the Independent Medicare Advisory Council (IMAC) in particular. The findings so far is not all that good,

In particular, CBO reviewed draft legislation transmitted to the Congress by the Administration on July 17, 2009, titled the Independent Medicare Advisory Council Act of 2009. CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 2010—2019 period (with all of the savings realized in fiscal years 2016 through 2019) if the proposal was added to H.R. 3200, the America’s Affordable Health Choices Act of 2009, as introduced in the House of Representatives. This estimate represents the expected value of the 10-year savings from the proposal: In CBO’s judgment, the probability is high that no savings would be realized, for reasons discussed below, but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis.

So we can expect $2 billion in savings over 10 years, there is a large probability of no savings. One reason we might get no savings is that the President will have to either approve or disapprove of whatever recommendations IMAC makes. I can’t imagine a President having issues with his approval ratings and looking at re-election being too keen on implementing cost saving measures that could be used by an opponent as being harmful to the elderly. Remember a while back the cartoon of Bush pushing a wheelchair bound elderly person over a cliff regarding Social Security?

Now to be fair CBO does estimate greater savings past the 10 year window, but that isn’t going to help us for the shorter term with addressing the massive costs over the next 10 years of the current health care “reform” legislation. IMAC might be a good idea for longer term savings, but for shorter terms savings the numbers just aren’t there. Any attempt to claim otherwise is…well what are politicians best noted for?

And the CBO does offer some suggestions on how to use IMAC to get greater savings in the next 10 years.

  • Setting explicit and feasible quantitative goals for reducing outlays in the Medicare program.
  • Providing clear authority for the council to recommend broad changes in coverage, benefit design, and payment and delivery systems.
  • Incorporating an explicit fall-back mechanism (such as an across-the board reduction in payments) if goals for cost reduction are not met.
  • Requiring independent verification of the expected reduction in program spending from implementing the recommendations.
  • Expanding the direction and authority of the council to include making recommendations for changes to Medicaid and other government health care programs, with specific goals set for each program.
  • Expanding the council’s mandate to include making recommendations for changes to the broader health care system. (Some such changes might be implemented through federal regulation, while others might require future legislation.)
  • Ensuring that the composition of the council is heavily weighted toward medical and other health policy experts who will actively seek to improve the efficiency of the health care system.
  • Ensuring the council’s access to the resources necessary to develop and test ideas for cost reduction. These resources would include access to appropriate program data, the ability to tap technical expertise available through the Department of Health and Human Services (HHS), and explicit authority to coordinate such work with the Secretary of
  • HHS.
  • Providing mandatory funding to enhance the independence of the council.

The CBO indicates while there would be larger savings, they would be limited by the time frame in terms of implementation (the council wouldn’t be created until 2015, and wouldn’t start issuing recommendations until 2016). So the idea that IMAC is going to have much impact over the next 10 years is not very likely.

OMB Director Peter Orszag basically agrees that IMAC is a longer term cost containment strategy.

The point of the proposal, however, was never to generate savings over the next decade. (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.) Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term.

Now compare this to President Obama’s press conference from July 22nd,

In addition to making sure that this plan doesn’t add to the deficit in the short term, the bill I sign must also slow the growth of health care costs in the long run. Our proposals would change incentives so that doctors and nurses are free to give patients the best care, just not the most expensive care. That’s why the nation’s largest organizations representing doctors and nurses have embraced our plan.

We also want to create an independent group of doctors and medical experts who are empowered to eliminate waste and inefficiency in Medicare on an annual basis — a proposal that could save even more money and ensure long-term financial health for Medicare. Overall, our proposals will improve the quality of care for our seniors and save them thousands of dollars on prescription drugs, which is why the AARP has endorsed our reform efforts.

The above paragraphs aren’t really true when considering what the OMB Director and the CBO Director are saying. The IMAC proposal will likely not prevent increasing the size of the deficit in the short run.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. John Burgess says:

    “Trust us! After ten years, we’ll have changed the laws of economics; ‘Supply & Demand’ will be shown as the canard that it really is (or we really hope it is).”

  2. Dave Schuler says:

    But imagine how great it will be if they can.

  3. steve says:

    Did you mean to use another Obama quote? I think the plan he talks about as not adding to the deficit is the health care bill and not IMAC. Does he not refer to IMAC in the second paragraph?


  4. Steve Verdon says:

    I read the second paragraph as a continuation of the first one I’ve quoted. The “We also…” part suggests to me it is a continuation of the overall theme on not adding to the budget deficit. Couple that with the “…save even more money…” it creates an impression that it will go towards deficit reduction. It might and in later years probably will…but the wording is rather…imprecise for one who is considered to be a skilled communicator. At the very least it is somewhat misleading.