05/13/2011 03:06 pm ET | Updated Jul 13, 2011

Taxing Medicare

Some in Congress, mostly Republicans, want to reduce the healthcare portion of our deficit by having Medicare recipients pay more. Some might even refer to this as a tax on the elderly. The fact is that Medicare recipients need to pay more but there is no sense paying more, if Congress is going to address our national healthcare problem and Medicare in a fragmented and historically unsuccessful manner. The Simpson-Bowles Report identified about $300B of savings in Medicare of which only $110B came from increased cost-sharing of Medicare recipients. The remaining savings require Congress to cut payments to special interests. Yet, even these are merely accounting exercises that ignore fundamental solutions to health care in this country: Medically efficacious treatment and lifestyle management.

As the old Groucho Marx joke goes, two old ladies are sitting in a restaurant. One says: "This food is lousy." The other says: "Yes, and the portions are small." That is health management in the US. Healthcare saps a larger proportion of our GDP than any other country in the world while the objective metrics of infant survival and life expectancy lag behind most industrial nations. Among all OECD countries the US has the highest prevalence of diabetes for ages 20 to 79. Yet, in this period when it is politically in vogue to rail against bigger government, the adage "to a hammer everything looks like a nail" is sadly appropriate.

Representative Paul Ryan (R-WI) advocates a voucher system for controlling costs with Medicare-eligible individuals purchasing health insurance in the private market. The Simpson-Bowles Report recommended that Medicare be modified to be more in line with private health insurance by adding copays and cost sharing. Yet, the private market is no panacea for controlling costs. Instead, as most workers and companies know, each year they see healthcare costs increasing faster than revenues and salaries. The Centers for Medicare and Medicaid estimate that private healthcare costs will increase on average 5.2% per year through 2019, or about 3% after inflation. Both proposals level the playing field between Medicare recipients and the under-65 population solely on patient out-of-pocket costs. Neither proposal cuts the rate of growth of our national health expenditure because they ignore the trend in industry to manage employee health.

Andrew Webber CEO of the National Business Coalition on Health (NBCH) and Suzanne Mercure of NBCH authored a paper last November entitled "Improving Population Health: The Business Community Imperative," discussing the role of business in improving our health care. Employers have a strong profit incentive for keeping their workforce healthy. Webber and Mercure discuss the importance and successes of some business coalitions that have helped reduce health costs and improve employee health. In time a free market should, with an incentive to reduce costs and the ability to form coalitions, pool resources and improve buying power.

Yet, these incentives evaporate when discussing Medicare recipients. There is no business looking to improve the health of this population. The present solutions can only be described as the elderly pay more. Even the new healthcare legislation that enacts health insurance exchanges to create a more open market (a concept many Republicans are against) does not envision these exchanges as Medicare mechanisms.

Enter the quaintly techy-sounding and recently much-maligned IPAB: Independent Payment Advisory Board. Enacted in the 2010 Healthcare Law, the IPAB is tasked with reducing Medicare costs while maintaining or improving healthcare quality. The findings of the IPAB are binding unless Congress overturns a recommendation with a replacement solution of similar value/quality. Many, mostly Republicans, want the IPAB enacting legislation repealed. The IPAB is the only government program that is tasked with solving the problem of healthcare growth.

The IPAB is not a new concept. In the UK the organization is called NICE, an even quirkier name than IPAB. The National Institute for Health and Clinical Excellence (NICE) is an independent agency responsible for verifying the efficacy and approving the cost of drugs and medical procedures. NICE basically takes evidence-based medicine and applies a single transparent (perhaps at times translucent) evaluation process to identify cost-effective procedures and medicines. Is it imperfect? Absolutely. Is it necessary? Without question. The same is true of IPAB. What is so bewildering is why anyone would be against IPAB? Health insurers tell a patient everyday that a procedure is not covered or that their hospital stay is too long. Yet, the public never gets to look behind the veil and understand the rationale behind these edicts. With IPAB, the public and Congress have a chance to understand what are best practices. The IPAB is not big government; it is good science and efficient medicine.

Health insurers and oil companies are unique in profiting from higher raw material costs. IPAB is not the solution to our exploding health costs. It is merely a piece of the puzzle. Without IPAB, 20 years from now, Social Security checks may not cover health insurance.