What’s Behind the Medicare Part B Premium Sticker Shock of 2020?

What’s Behind the Medicare Part B Premium Sticker Shock of 2020?

Medicare Part B documents

Medicare Part B documents

The surprisingly large increase in Medicare Part B premiums for 2022 reflects the sky-high cost of a controversial Alzheimer’s drug. The premium increase will do more than weigh on the newly increased Social Security living allowance, which totals $92 a month for the average retiree. If you’re wondering how to pay for post-retirement health care, consider working with a financial advisor.

How we got here

In June 2021, the Food and Drug Administration, using its “accelerated approval pathway,” gave the green light for use of Aduhelm, a $56,000-a-year anti-Alzheimer’s drug made by Swiss pharmaceutical company Biogen. Alzheimer’s, a progressive brain disease, affects approximately 50 million people worldwide. No medical treatment has been found to actually cure the disease.

The move was well received on Wall Street as Biogen’s stock prices plummeted 31% on the news. But the move didn’t sit well with many in the medical and public health communities, who dispute Aduhelm’s effectiveness. Three FDA advisers resigned in protest.

The FDA’s move could be extremely costly for Medicare. The Kaiser Family Foundation said in July that it conservatively estimated Aduhelm’s cost to Medicare at $29 billion in one year, based on 500,000 Medicare patients receiving the new drug. For comparison, total Medicare spending on all physician-administered drugs was $37 billion in 2019.

The reason for the sticker shock

Retirees when visiting TV with his doctor

Retirees when visiting TV with his doctor

As recently as August, the Medicare Trustees report had forecast a smaller increase of $10, or 6.7%, from the current $148.50. Medicare Part B includes medical services, outpatient hospital services, certain home health services, permanent medical devices, and certain other medical and health services not covered by Medicare Part A.

Then, on November 12, the Centers for Medicare & Medicaid Services (CMS) released their 2022 Medicare Part A and B premiums, deductibles, and coinsurance amounts, and their 2022 Part D earnings-related monthly adjustment amounts.

CMS said it will increase the standard monthly premium in 2022 to $170.10 from $148.50 in 2021 — a jump of 14.55% and more than double what was expected. It’s one of the largest outpatient premium increases in dollars. Even so, most people on 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 a net increase of $70.40 more per month after the Medicare Part B premium is deducted.

There were also other hikes: ThThe deductible rose 14.8%, or $30, to $233. Eventually, the Part A deductible increased by $72 to $1,556.

Aduhelm was blamed for the unpleasant surprise. “There is significant uncertainty regarding the potential for future coverage of clinically administered Alzheimer’s drugs (ie, Aduhelm) that require additional contingency reserves,” CMS said in announcing 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 for Aduhelm (as well as all drugs in this category) has yet to be determined.”

In addition to Aduhelm, CMS also cited a few other reasons for the premium increase: higher healthcare expenses attributed to COVID-19 care and compensation for the unusually low Part B premium increase — just $3 — in 2021, which was the ordered by Congress due to the pandemic. Congress also mandated CMS to offset this lower premium with an increase in 2022.

The conclusion

US Capitol

US Capitol

There may be implications for the Part B premium increase in Washington. On November 2, President Biden proposed authorizing Medicare to negotiate prices for expensive prescription drugs. “This includes drugs that seniors receive at the pharmacy counter (via Medicare Part D) and drugs that are administered in a doctor’s office (via Medicare Part B),” said a White House statement on Biden’s Build Back Better Act.

It’s not clear, however, that this provision will be included in a final version of the Build Back Better Act, as progressives and activists like the AARP are negotiating with moderates and Republicans over the bill’s various spending proposals. Sticker shock over the 2022 Part B bounty may have enraged activists as they urge lawmakers to authorize 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 pharmaceutical companies,” said Bill Sweeney, AARP’s senior vice president for government affairs. “When Big Pharma sets a high drug price, everyone pays – not just those who need the drugs. That’s why Congress must act quickly to pass prescription drug reforms in the Build Back Better Act that would bring meaningful, much-needed relief to seniors and all Americans.”

bottom line

The standard Medicare Part B monthly premium in 2022 increased to $170.10 from $148.50 in 2021 — a jump of 14.55% and more than double what was expected. Even so, most people on Medicare still receive more Social Security benefits. For example, a retiree who receives $1,565 per month from Social Security actually receives a net increase of $70.40 more per month after the newly increased Medicare Part B premium is deducted. The premium increase could increase pressure on lawmakers, who are horse-trading over details of Biden’s spending plans, to give Medicare the right to negotiate high-priced drugs like Aduhelm.

health tips

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