Mid-year reductions and refunds don’t work; savings will be reflected in 2023 premium.
In November 2021, the Centers for Medicare and Medicaid Services (CMS) announced that the Medicare part B premium would increase by 14.5 percent. Roughly half of this increase was attributable to the need to create a contingency reserve to cover significantly higher expenditures associated with Aduhelm, Biogen’s controversial new drug aimed at slowing the loss in cognition from Alzheimer’s disease. The estimated cost for one year’s treatment was $56,000.
Part B covers physician and outpatient hospital services and, relevant for this discussion, drugs that are administered in a physician’s office rather than purchased at a pharmacy. (Medicare Part D covers retail prescription drugs.) The Part B premium is set at 25% of projected program costs and must ensure that the program’s Trust Fund has sufficient reserves to cover costs during the year.
After the Part B premium increase was determined, two things happened. First, in December 2021 Biogen announced that it would cut the price of Aduhelm nearly in half to $28,200 annually. Second, in January 2022 CMS issued a preliminary decision to limit Medicare’s coverage of the new drug to those enrolled in clinical trials, greatly restricting its use. (This decision was finalized in April.)
In January 2022, the Secretary of Health and Human Services asked CMS to reassess its recommendation for the Part B premium. The agency considered three options: 1) making a mid-year change in the premium; 2) sending out refund checks; and 3) incorporating the savings into the 2023 premium.
Apparently, the Part B premium has never been redetermined; the statute says that the determination should be made for the entire year. Moreover, in May 2022, CMS concluded that recalculating the premium would be very complicated, involve significant resources, and require a number of entities that are involved in the payment of the premium for different groups of beneficiaries to make major operational changes.
The idea of sending out refund checks was even less appealing. CMS concluded that the agency only had the authority to send premium refund checks in instances of overpayment relative to the established premium.
Thus, the decision has been made to incorporate the savings into the 2023 premium, which will be determined in the fall. How would that work? The 2022 Part B premium is $170.10. If all spending assumptions remained unchanged but the actual price of Aduhelm was reduced to $28,200 and the decision to limit coverage to clinical trials was incorporated, the premium would have been $160.40. My sense is that the premium will not actually be reduced but rather held at $170.10 for 2023, as projected in the federal budget. However, the excess assets in the Medicare Part B trust fund should further dampen premium growth after 2023.
The CMS approach seems quite sensible given the technical problems associated with mid-year corrections and refunds. A year with no Part B premium increase will be a welcome respite and allow retirees to use their entire Social Security cost-of-living adjustment to cover rising prices for other goods and services.