November 16, 2021

Why Medicare premiums are jumping 15% next year

CMS on Friday announced that monthly Medicare Part B premiums and deductibles will increase substantially in 2022, in part due to uncertainty around the Covid-19 pandemic and coverage for the Alzheimer's drug Aduhelm.

Cheat sheets: Medicare payment programs

Medicare premiums set to increase in 2022

In a notice, CMS said there are five key factors behind the 2022 Part B premium increase:

3 questions providers must ask themselves about Aduhelm’s approval

The impact of the Covid-19 pandemic
The potential impact of coverage for Biogen's Alzheimer's drug Aduhelm
Differences between actual Medicare performance and estimated costs from previous years
Potential legislation that may affect Medicare costs
The expected relationship between incurred and cash expenditures

According to CMS, the Covid-19 pandemic and potential coverage of Aduhelm add a "higher-than-usual degree of uncertainty" for projected Medicare costs in 2022.

And due to the pandemic, it is difficult to predict future Medicare spending, Axios reports—such as whether patients will receive more non-Covid-related care that they may have delayed.

Although Medicare is still determining whether it will pay for Aduhelm, federal regulators said they had to plan for a "high-cost scenario of Aduhelm coverage," Axios reports. The Alzheimer's treatment, which FDA approved in June, has been priced at an average of $56,000 a year.

If covered, Aduhelm along with its associated hospital and provider costs, could lead to "very significant" costs to Medicare, CMS said.

How big will the increase be?

Monthly Medicare premiums for physician and outpatient services will increase by almost 15% in 2022, Modern Healthcare reports.

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The standard Medicare Part B premium will be $170.10 per month, up from $148.50 per month in 2021. This increase in monthly premiums means an annual cost increase of $259.20 for Medicare beneficiaries, Axios reports. In addition, the Part B deductible will increase from $203 to $233.

According to CMS, Medicare enrollees will also receive a 5.9% year-over-year cost of living adjustment through their Social Security benefits. The agency said this will help enrollees cover the increase in monthly premiums.

"CMS is committed to ensuring high quality care and affordable coverage for those who rely on Medicare today, while protecting Medicare's sustainability for future generations," said CMS Administrator Chiquita Brooks-LaSure. "The increase in the Part B premiums for 2022 is continued evidence that rising drug costs threaten the affordability and sustainability of the Medicare program." (Herman, Axios, 11/15; Tepper, Modern Healthcare, 11/12; CMS notice, 11/12)

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Advisory Board's take

The challenge of Aduhelm (and similar drugs) for the future of Medicare

By Regina Lohr and Natalie Trebes

CMS’s rate announcement should be viewed as a bellwether for the finances of many plans and purchasers. The two abnormal factors they cite—pandemic-related spending and Aduhelm—are massive uncertainties that CMS must proactively price into their coverage. In general, plans and purchasers have remained uncertain about the continued impacts of the pandemic on care utilization. Whether it is pent-up demand, deferred care, or handling Covid-19 care itself, quarterly earnings disclosures from large plans continue to oscillate. It's not a deep surprise that Medicare premiums have been forecasted to increase by such a large percentage. There is more to this forecast, so let's not stop there.

The Aduhelm predicament

The emphasis on drug costs and Aduhelm is part political calculus and part a familiar refrain for any purchaser. That is, what you're seeing from Medicare is the same challenge we're hearing from all purchasers (e.g., employers): a pre-existing struggle to contain drug costs and pharmacy spend is being exacerbated by increasingly expensive drugs coming online.

Aduhelm is particularly challenging to plan for, as so many patients (at least 1.5 million) are potentially eligible to receive the drug. It would also require additional high-cost procedures such as a PET scan or lumbar puncture to determine an individual patient's eligibility. And added to that is the cost of caring for potential side effects such as brain swelling and falls that patients taking the drug may experience.

And while most other purchasers won’t be affected to the same degree by Aduhelm specifically given the concentration of Alzheimer’s disease in the 65+ population, the lack of sustainable cost management solutions more broadly is a concern for the pipeline of future drugs. High-cost specialty drugs are upending typical purchaser approaches and necessitating changes to offset those costs; in this case, passing on higher premium costs; in other cases—such as with employers—"carving out” certain specialty drugs altogether.

Looking forward—what should we expect?

There are plenty of open questions we are still asking when it comes to drugs like Aduhelm. It’s worth noting that CMS is still determining whether it will even cover Aduhelm, given the current lack of conclusive evidence of the drug’s impact on treating the disease. The medication is currently in the midst of a National Coverage Determination analysis process that’s expected to conclude in Spring 2022. So, while we can't count on it, there is a possibility that these rates come back down if CMS declines or limits coverage.

But in the meantime, these high-profile premium increases could have spillover impact on any current legislative activities around the Medicare program—especially any attempts to expand Medicare coverage. It's not unreasonable to ask: is the future of Medicare at risk of falling apart if it runs short of money? Will premium increases save Medicare? Are massive premium hikes the new normal for Medicare? We don't have all the answers, but we do think it is worth asking the hard questions.

Jared Landis helped contribute to this piece.