Medicare Faqs

The Independent Payment Advisory Board (IPAB), established by the Affordable Care Act (ACA), is a new board tasked with finding ways to reduce the growth in Medicare spending, if Medicare spending growth exceeds target rates. IPAB will be comprised of 15 members, appointed by the president and confirmed by the Senate, and its Medicare savings recommendations will be fast-tracked to Congress for approval. The president must consult with Congressional leadership in making 12 of the appointments. To qualify, IPAB members must have expertise in health care, economics, research and technology assessment, experience with employers and third-party payers, and consumers. A majority of members must be nonproviders, and both urban and rural interests must be represented. Finally, IPAB members must be full-time federal employees, and therefore cannot engage in any other business, vocation or employment.

House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) recently refused President Obama's request for them to suggest appointees for IPAB. The Congressional Research Office sent a memo to Sen. Tom Coburn (R-Okla.) saying that if the GOP is successful, the law directs Department of Health and Human Services Secretary Kathleen Sebelius to propose her own cuts.

IPAB will operate on a three-year cycle. In the first year, known as the “determination” phase, the Centers for Medicare & Medicaid Services (CMS) will determine whether Medicare spending is projected to exceed its target. Prior to 2020, the target for the growth rate of Medicare spending is based on the average of the general inflation rate: the Consumer Price Index for Urban Consumers (CPI-U) and the medical inflation rate (medical care expenditure category within the CPI-U). After 2020, it will be based on the per capita growth in the economy (the gross domestic product) plus one percentage point. 

While the target is not a hard cap on Medicare spending growth, IPAB is required to submit recommendations to reduce Medicare spending by a specified percentage, if spending exceeds these targets. This occurs in year two — the “proposal” phase — when IPAB submits its recommendations to Congress and the president on how to bring spending in line with the applicable limits. In year three, the process enters an “implementation” phase, during which time the proposed payment changes for the relevant providers are implemented. IPAB’s recommendations are thus binding beginning in 2015, meaning that the Secretary of Health and Human Services is required to implement changes in payments rates by August 15 of the proposal year; changes will become effective at the beginning of the upcoming fiscal or calendar year, depending on the providers’ payment cycle.

If Congress rejects the recommendations and Medicare spending exceeds specific targets, Congress must enact policies that achieve equivalent savings with a simple majority vote. It can also block IPAB’s recommendations with a supermajority. However, if Congress does not act in the required timeframe, the Secretary of Health and Human Services is, by default, required to implement IPAB’s recommendations. IPAB is not subject to judicial or administrative review, and is funded through a permanent mechanism established by the ACA, which appropriated $15 million for IPAB in FY2012 from the Medicare Trust Funds. Subsequent appropriations will be automatic and indexed annually to the consumer price index (CPI).

IPAB was supposed to begin its work in 2014, but Medicare spending has grown slowly enough that the board will not take effect next year.

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