The surprisingly large jump in Medicare Part B premiums for 2022 reflects the extremely high cost of a controversial Alzheimer’s drug. The increase in premiums will put more than a dent in the newly increased Social Security Living Allowance, which amounts to $92 per month for the average retired worker. If you’re wondering how to pay for health care after retirement, consider working with a financial advisor.
How we got here
In June 2021, the Food and Drug Administration, using its “fast track approval,” gave the go-ahead for the use of Aduhelm, a $56,000-a-year Alzheimer’s drug made by Swiss pharmaceutical company Biogen. Alzheimer’s disease, a progressive brain disease, affects about 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 price jumped 31% on the news. But the move didn’t go down so well with many in the medical and public health community, who disputed Aduhelm’s efficacy. Three FDA advisers resigned in protest.
The FDA’s move is likely to be extremely costly for Medicare. The Kaiser Family Foundation in July said it conservatively estimated Aduhelm’s cost to Medicare at $29 billion a year, based on 500,000 Medicare patients receiving the new drug. For perspective, total Medicare spending on all physician-administered drugs in 2019 was $37 billion.
The reason for the sticker shock
As recently as August, the Medicare Trustees report predicted 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 care services not covered by Medicare Part A.
Then, on November 12, Centers for Medicare & Medicaid Services (CMS) has released its 2022 Medicare Part A and B premiums, deductibles, and coinsurance amounts, as well as the 2022 Part D monthly income adjustment amounts.
CMS said it is raising the standard monthly premium in 2022 to $170.10 from $148.50 in 2021 — a 14.55 percent jump and more than double what was expected. This is one of the largest increases in outpatient premiums in dollar terms. However, most people with Medicare will still see a significant net increase in Social security benefits. For example, a retired worker currently receiving $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: ThDeductibles jumped 14.8%, or $30, to $233. Finally, the Part A deductible jumped $72 to $1,556.
Aduhelm was blamed for the unpleasant surprise. “There is significant uncertainty regarding the potential for future coverage of clinician-administered Alzheimer’s drugs (ie, Aduhelm), requiring additional contingency reserves,” CMS said when it announced the premium increase. “Medicare’s potential medical coverage is currently under analysis to determine Medicare National Coverage (NCD), which, if covered, could increase Medicare spending. The proposed NCD for Aduhelm (like all medicines in this category) has yet to be determined.
In addition to Aduhelm, CMS cited several other reasons for the premium increase: higher health care costs due to COVID-19 care and compensation for the unusually low Part B premium increase — just $3 — in 2021, something which Congress authorized due to the pandemic. Congress also authorized CMS to offset this lower premium with an increase in 2022.
There may be ramifications in Washington on the Part B premium increase. On November 2, President Biden proposed authorizing Medicare to negotiate prices for expensive prescription drugs. “This will include drugs that seniors get over the counter at a pharmacy (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 Better Recovery Act.
However, it is unclear whether that provision will be included in the final version of the Build Back Better Act, as progressives and activists such as AARP negotiate with moderates and Republicans over various spending proposals in the bill. The sticker shock surrounding the 2022 Part B premium may have energized activists as they urge lawmakers to authorize Medicare to negotiate drug prices by including it in Build Back Better Act.
“Once again, America’s seniors and taxpayers will pay the price for the outrageous pricing of big drug companies,” said Bill Sweeney, AARP senior vice president of government affairs. “When Big Pharma sets a high price for drugs, everyone pays for it – not just those who need the drugs. That’s why Congress must act quickly to pass the prescription drug reforms in the Better Recovery Act that will bring significant, much-needed relief to seniors and all Americans.
The standard Medicare Part B monthly premium in 2022 rose to $170.10 from $148.50 in 2021 — a 14.55% jump and more than double what was expected. However, most people with Medicare will still receive more Social Security. For example, a retired worker receiving $1,565 a month in Social Security would actually get a net increase of $70.40 more per month after the recently increased Medicare Part B premium is deducted. The premium increase could increase pressure on lawmakers , involved in horse trading regarding details of Biden’s spending plansto give Medicare the right to negotiate high-priced drugs like Aduhelm.
Health care tips
Consider working with a financial advisor as you strive to make sure you can cover your health care needs in retirement. SmartAsset’s free tool connects you with up to three financial advisors in your area, and you can interview your advisor matches for free to decide who is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Given that health care costs are a large part of retirement expenses, it’s important to know what your financial resources are or will be when it’s time to retire. To find out, use our free retirement calculator.
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