(Bloomberg) — The main trust fund behind Medicare, the U.S. health care program for the elderly and disabled, will be exhausted in 2028, two years sooner than projected last year, the government said in a report today.
In addition, a controversial cost-cutting mechanism created under Obamacare, known as the Independent Payment Advisory Board, or IPAB, is projected to be triggered in 2017, the same timeline as predicted in last year’s report by Medicare’s Board of Trustees.
Related: Trustees: Medicare about 22% short
Investors had been watching nervously for news of the IPAB determination, fearing that it could have been triggered this year and setting in motion reductions in Medicare payments to biotech and pharmaceutical companies. The Nasdaq Biotechnology Index of 189 stocks has fallen for 11 of the last 13 trading days, including Wednesday. The index was down less than 1 percent at 9:57 a.m. in New York.
The report by Medicare’s trustees each year projects the long-term finances of the government’s health insurance program for about 55 million elderly and disabled Americans. Medicare spent $632 billion on health care in 2015, according to the Kaiser Family Foundation, making it the single biggest purchaser of health services in the U.S. The spending projections also determine whether the IPAB, one of the Patient Protection and Affordable Care Act’s mechanisms to control U.S. health spending, will go into effect.
The IPAB is a 15-member panel that would be appointed by the president and has broad authority to propose cuts to payments made through Medicare. Congress, which has typically controlled many aspects of Medicare’s payments through legislation, has limited oversight of the IPAB, which was set up specifically to make reductions to U.S. health spending, at a distance from lawmakers and lobbyists.
Once appointed, the board proposes cuts to Medicare payments that will bring Medicare back under target levels that are based on rates of consumer inflation and U.S. gross domestic product. Those cuts are then sent to the president and Congress for fast-track consideration, though it’s not clear how the IPAB’s operations would fare in the face of what could be strong opposition or a legislature determined to fight its conclusions.
Lawmakers on both sides of the aisle have expressed concern, and House Speaker Paul Ryan would abolish the board in his proposed health care overhaul, released this week.
Investors will have to wait until next year to see if the panel is triggered. If the rate of U.S. health spending slows, it may not be.
Medicare’s trust fund pays for hospital visits, nursing care and related services under what’s known as Part A of the program. Medicare Part B, which covers outpatient visits, and Part D, which pays for most prescription drugs, are paid for in part by general revenues and by individuals’ premiums. That means those programs don’t face a risk of funds running out.
In 2028, the Part A fund will only be able to pay for 87 percent of its obligations out of dedicated Medicare funds. Part B and Part D are expected to be adequately financed, the trustees said in the report.
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