Medicare escapes mandatory cuts in 2017, trustees report

[July 14, 2017] By Toni Clarke

WASHINGTON (Reuters) - The U.S. government program that pays for hospital care for the elderly will remain solvent through 2029, enabling it to escape mandatory spending cuts this year, according to a report by Medicare's trustees released on Thursday.

Last year's report forecast the program would remain solvent only through 2028 and predicted that spending levels in 2017 would likely trigger the creation of an Independent Payment Advisory Board (IPAB) to automatically rein in costs.

Treasury Secretary Steven Mnuchin told reporters at a press conference that Social Security and Medicare "are secure and will remain secure," though officials acknowledged that long-term shortfalls due to an aging population and tepid economic growth were "alarming."

Healthcare investors breathed a sigh of relief that the advisory board, a provision contained in the Affordable Care Act, will not be triggered since its theoretical capacity to cut Medicare's pharmaceuticals bill could have been used as a bargaining chip to extract price concessions.

"While this may still be the case in the future, there is also a good chance that IPAB will be dismantled altogether in future, eliminating this risk in its entirety," Tim Anderson, an analyst at Sanford Bernstein, said in a research note.

Under the controversial measure, a 15-member panel, or the Health and Human Services Department if a panel could not be convened, would recommend cost-cutting measures. Congress could either pass the recommendations or enact alternative legislation to achieve similar savings.

If Congress failed to act, the administration's proposals in theory could be enacted through regulation.

The IPAB provision "is almost unanimously loathed by both parties in Congress, and an abbreviated legislative process for circumventing the mechanism this year is already underway," Rob Smith, an analyst at Capital Alpha Partners, said in a research note.

Last July's report predicted the IPAB would likely be triggered in 2017 and that a 0.2 percent, or roughly $1.3 billion spending cut would be needed to bring program costs back into line.

The combined Social Security trust funds covering benefits for the elderly and disability insurance could be depleted by 2034, the same level as projected last year according to the trustees, in part because of lower disability claims and fewer payouts.

(Additional reporting by Caroline Humer and Lewis Krauskopf in New York; Editing by Tom Brown and David Gregorio)

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