The "death spiral" may be a myth.
Photograph by Andrew Harrer — Bloomberg via Getty Images
By Sy Mukherjee
June 22, 2016

An Obamacare cost-cutting program that’s had the health industry on its toes and been compared to “death panels” by critics won’t be triggered this year after all, the government announced.

The Board of Trustees which oversees Medicare, the federal health program for the elderly that covers some 55 million Americans, released its annual report on Wednesday. The analysis detailed some warning signs, including a projection that Medicare will be running out of its reserve funds two years sooner than expected.

But a hotly anticipated part of the study centers on the Independent Payment Advisory Board (IPAB)—an Obamacare cost-control consortium that eventually came to fall under the infamous “death panels” moniker lobbed against the health law by former Alaska Governor Sarah Palin. (Politifact dubbed Palin’s claims as its “Lie of the Year” in 2009.)

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The IPAB’s purpose is to hold Medicare spending in check, potentially by proposing cuts to how much the public program pays health industry players like drug companies and hospitals, that would then have to receive fast-track consideration in Congress. The independent 15-member board doesn’t even actually exist yet—Congressional Republicans have threatened to roadblock anyone President Obama names to it—but it is supposed to be triggered once Medicare spending growth starts to exceed target levels determined by inflation and Gross Domestic Product (GDP).

Wednesday’s report finds that the projected growth rate won’t cross that threshold this year, and that IPAB is most likely to be triggered in 2017. That has health care and biopharma companies sighing in relief—many feared that the target would be reached this year, telegraphing possible government spending cuts in the near future. Biotech and health stock indices were up modestly after the announcement.

But the cuts have merely been deferred, not dashed. Once the Medicare growth rate hits the magic number, the payment cut process will begin to play out, as nonpartisan health care think tank the Kaiser Family Foundation notes. (Cuts wouldn’t actually start to take effect until 2019.)

Kaiser Family Foundation

 

It’s still unclear how powerful IPAB would turn out to be in reality. Its funding has been scaled back through appropriations bills (and, again, it has yet to actually be convened) and the Medicare Trustees project that its eventual proposed cuts are likely to have modest effects on the spending rate.

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