Medicare is the primary health insurance for most people over age 65. Medicare Part A, which covers hospitals, is typically free. Medicare Part B charges a monthly fee that covers doctor visits and outpatient services. Most people pay for their Part B premium from their Social Security check.
Each year, Congress and the Centers for Medicare & Medicaid Services (CMS) decide how much to charge for Part B. This year, the increase ($21.60/month) is the largest dollar increase in Medicare history and the largest percentage increase (15%) since 2016.
There are three reasons for the large increase:
- Health care costs have increased, in part due to the pandemic.
- Last year, Congress limited that year’s increase ($3.90) to reduce the impact on people negatively affected by the pandemic. Some of this year’s increase will start to make up for that limitation.
- About half of this year’s increase is a result of CMS anticipating the significant cost involved in paying for a new Alzheimer’s drug, Aduhelm, that was approved by the Food and Drug Administration (FDA) last year.
- Biogen Inc., the maker of Aduhelm, submitted the drug for approval to the FDA. Despite the clinical trials not showing improvement in patients, it was thought to be “reasonably likely” that the drug’s proven reduction of amyloid, a protein related to cognitive impairment in Alzheimer’s patients, would slow cognitive decline. The approval was given despite the FDA’s external advisory committee of experts voting against it (10 to 0).
- CMS was anticipating the cost of ongoing treatment to be $56,000/year just for the drug (since reduced to $28,200) plus the cost of administering the drug by intravenous infusion in a hospital setting, when they set the 2022 Part B premium last November.
- CMS has since proposed covering treatment only for patients in clinical trials. Patients and their families (and lobbyists and investors) are advocating for expanding coverage to more patients, particularly since this is the only approved drug that treats the disease (versus treating the symptoms). CMS will make a final decision in April.
- As a result of the decrease in the price of the drug, the Department of Health & Human Services has asked CMS to consider reducing the large Part B premium increase.
There are two other policies that could impact your Part B premium.
- The first is the policy that a few seniors with unusually high income—anyone with a modified adjusted gross income over $91,000 in 2022 (or couples with over $182,000)—must pay more for Part B (and Medicare Part D, prescription drug coverage). This is called an Income Related Monthly Adjusted Amount (IRMAA). It affects only about 7% of all Medicare beneficiaries. (Note that your income affects your premium two years in the future – so your 2020 income determines your 2022 premium, and your 2022 income will determine your 2024 premium).
- The second is the “hold harmless” policy. Any year that the dollar increase in the Part B premium is larger than your Social Security cost of living adjustment (COLA) dollar increase, the Part B premium will be capped at your COLA increase. This means that your Social Security check will not decrease. This policy generally protects about 75% of all Medicare beneficiaries.
There are exceptions to the hold harmless policy. It does not apply to anyone who:
- does not receive a Social Security benefit (for example, someone who has delayed claiming their benefit);
- is subject to IRMAA due to high income; and/or
- is on Medicare for the first time (just turned 65).
The Social Security COLA is based on the current inflation rate. The COLA for 2022 is an unusually high 5.9%, resulting in a larger than normal dollar increase to Social Security benefits. So, the ‘hold harmless’ policy does not apply to 2022 premiums since the increase in Social Security benefits in dollar terms is substantially higher than the increase in Medicare B premiums.
Depending on what happens between CMS, Congress, and the Executive Branch, there may be an unusual midyear reduction in this year’s Part B premium.
Jean Fullerton, CFP® is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.