June 22, 2016 / 2:40 PM / 4 years ago

Medicare program spending within target rate: trustees

WASHINGTON (Reuters) - The U.S. federal program that pays elderly Americans’ hospital bills will exhaust its reserves in 2028, two years sooner than last year’s estimate, trustees of the program said on Wednesday, but spending growth remained within forecasts.

The Medicare program, which provides health coverage for more than 55 million older as well as disabled people, said that the projected growth rate for per capita spending has not exceeded its target.

That put aside the need for the program’s regulator, the Centers for Medicaid and Medicare Services, to establish a savings target and to initiate mandatory spending cuts, their annual financial report said. As such, the government would not need to immediately set up an Independent Payment Advisory Board to make proposals on the cuts, it said.

Drug stocks gained after the release of the report on Wednesday, with the Nasdaq Biotechnology Index up 2.5 percent. It had lost ground ahead of the report’s release. Wall Street analysts had worried that if the mandatory savings clause was triggered, the new board might have tried to implement cuts in prescription drug prices.

“Not hitting the trigger is good news for healthcare investors,” Sanford Bernstein analyst Timothy Anderson wrote in a research note.

In the annual financial review, the trustees also said that the combined Social Security and disability trust fund reserves are estimated to run out in 2034, the same projection as last year.

Medicare spending in 2015 totaled $647.6 billion.

The Medicare program’s trust fund for hospital care is still scheduled to have sufficient funding 11 years longer than the estimate given before the Affordable Care Act was passed, the trustees said.

The trustees put the shorter timeline down to changes in estimates of income and cost, particularly in the near term.

A depletion in funds available for Medicare and Social Security does not mean the programs would suddenly stop. At the current rate of payroll tax collections, Medicare would be able to cover 87 percent of costs in 2028. This would fall to 79 percent by 2043 and then gradually increase.

Social Security would be able to pay about three-quarters of scheduled benefits from 2034 to 2090, the trustees said.

Additional reporting by Caroline Humer and Lewis Krauskopf in New York

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