What’s Behind 2020’s Medicare Part B Premium Sticker Shock?
Medicare Part B documents
The surprisingly big jump in Medicare Part B premiums for 2022 reflects the sky-high cost of a controversial Alzheimer’s disease drug. The premium hike will put more than a dent in the newly increased Social Security cost-of-living allowance, which worked out to $92 a month for the average retired worker. If you’re wondering how to pay for healthcare after retirement, consider working with a financial advisor.
How We Got Here
In June 2021 the Food and Drug Administration, using its “accelerated approval pathway,” greenlit the use of Aduhelm, a $56,000-per-year Alzeimer’s disease medication produced by Swiss pharmaceutical company Biogen. Alzeimer’s, a progressive brain disorder, affects some 50 million worldwide. No medical treatment has been found to actually cure the ailment.
The move went down well on Wall Street as Biogen share prices popped 31% on the news. But the move didn’t go down as well with many in the medical and public health community who dispute Aduhelm’s efficacy. Three FDA advisors resigned in protest.
The FDA’s move is likely to be extremely costly for Medicare. The Kaiser Family Foundation in July said it conservatively estimates the cost to Medicare of Aduhelm at $29 billion in one year, based on 500,000 Medicare patients getting the new drug. For perspective, the total Medicare spending for all physician-administered drugs in 2019 was $37 billion.
The Reason for the Sticker Shock
Retired man on televisit with his doctor
As recently as August, the Medicare Trustees’ report had projected a smaller increase of $10, or 6.7%, from the current $148.50. Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment and certain other medical and health services not covered by Medicare Part A.
Then, on Nov. 12, the Centers for Medicare & Medicaid Services (CMS) released its 2022 Medicare Parts A and B premiums, deductibles and coinsurance amounts, as well as its 2022 Part D income-related monthly adjustment amounts.
The CMS said it was raising the standard monthly premium in 2022 to $170.10 from $148.50 in 2021 – a 14.55% jump and more than double what had been expected. It is one of the largest outpatient premium increases in dollar terms. Nevertheless, most people with Medicare will still see a significant net increase in Social Security benefits. For example, a retired worker who currently receives $1,565 per month from Social Security can expect to receive a net increase of $70.40 more per month after the Medicare Part B premium is deducted.
There were other hikes as well: The deductible popped 14.8%, or $30, to $233. Finally, the Part A deductible jumped $72 to $1,556.
Aduhelm got blamed for the unpleasant surprise. “There is significant uncertainty regarding the potential for future coverage of clinician-administered Alzheimer’s drugs (i.e., Aduhelm), requiring additional contingency reserves,” the CMS said when it announced the premium increase. “Potential Medicare drug coverage is currently the subject of a Medicare National Coverage Determination (NCD) analysis, which, if covered, could increase Medicare spending. The proposed NCD on Aduhelm (as well as any drugs in this category) is still to be determined.”
Besides Aduhelm, the CMS gave a couple other reasons for the premium increase: Higher healthcare spending attributed to COVID-19 care and compensation for the unusually low Part B premium increase – a mere $3 – in 2021, something Congress mandated because of the pandemic. Congress also mandated the CMS to compensate for that lower premium with an increase in 2022.
There may be ramifications in Washington for the Part B premium increase. On Nov. 2 President Biden proposed empowering Medicare to negotiate prices for high-cost prescription drugs. “This will include drugs seniors get at the pharmacy counter (through Medicare Part D), and drugs that are administered in a doctor’s office (through Medicare Part B),” a White House statement said of Biden’s Build Back Better Act.
However, it’s not clear that this provision will be included in a final version of the Build Back Better Act as progressives and activists, such as the AARP, negotiate with moderates and Republicans over the bill’s various spending proposals. The sticker shock over the 2022 Part B premium may have energized activists as they urge lawmakers to empower Medicare to negotiate drug prices by including it in the Build Back Better Act.
“Once again, American seniors and taxpayers will pay the price for the outrageous pricing behavior of big drug companies,” said Bill Sweeney, AARP senior vice president for government affairs. “When Big Pharma sets a high drug price, everyone pays for it – not just those who need the medications. That’s why Congress must act swiftly to pass prescription drug reforms in the Build Back Better Act, which would bring meaningful, much-needed relief to seniors and all Americans.”
The standard monthly Medicare Part B premium in 2022 rose to $170.10 from $148.50 in 2021 – a 14.55% jump and more than double what had been expected. Nevertheless most people with Medicare will still get more in Social Security benefits. For example, a retired worker who gets $1,565 per month from Social Security will actually get a net increase of $70.40 more per month after the newly increased Medicare Part B premium is deducted. The premium increase may increase pressure on lawmakers, embroiled in horse trading over details of Biden’s spending plans, to give Medicare the right to negotiate high-price drugs like Aduhelm.
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