With the focus on the Build Back Better Act (BBBA), you may have missed the recent news that Medicare Part B premiums are increasing 14.5 percent for most beneficiaries next year. There’s a lot to unpack, but what stands out is that much of this premium increase is for a “contingency reserve” to cover the costs of Biogen’s new Alzheimer’s drug Aduhelm—if Medicare ultimately decides to cover it. 

Medicare Part B primarily covers physician services and out-patient hospital services, along with some home health and durable medical equipment expenses, among other things. Medicare beneficiaries pay a monthly premium (the standard premium is $148.59 per month in 2021) and have an annual deductible ($203 in 2021). In August, the Medicare Trustees projected that premiums would rise to $158.50 for 2022,a 6.7 percent increase. Instead, the Centers for Medicare and Medicaid Services (CMS) announced last week the standard monthly Part B premium in 2022 will be $170.10, an increase of $21.60 a month. This is the largest dollar increase in Part B premiums in history. The annual deductible will also be increasing $30 to $233 in 2022.

CMS has cited three primary drivers of this historic premium increase. First, back in 2020, Congress artificially constrained the Part B premium increase for 2021 to $3 amid the pandemic and ensuing economic slowdown. CMS was directed to recapture lost premium dollars over the following years.  

CMS says that the need to recapture constrained pandemic premiums, paired with general program cost increases, accounts for half of the 2022 premium increase. The agency attributes the rest of the increase to Aduhelm, the new and controversial Alzheimer’s treatment approved by the Food and Drug Administration (FDA) earlier this year. I explored that issue in a previous Weekly Checkup, but given questions about its effectiveness, controversy around the FDA’s approval process for the drug, and the cost ($56,000 per year, per patient) Medicare has not yet made a coverage determination. CMS is arguing that half of the 2022 premium increase is necessary to fund a “contingency reserve” in case Medicare decides to cover Aduhelm. In other words, Medicare will take seniors’ money up front, and make a decision about coverage later. 

In fairness to CMS, the majority of U.S. Alzheimer’s patients are enrolled in Medicare, and estimates indicate that the impact of Aduhelm on Medicare spending could easily surpass $100 billion annually. For context, total Medicare Part B spending in 2019 was $37 billion. That said, Medicare is unlikely to approve expansive coverage of the therapy. Medicare can, and probably should, limit coverage to a subset of patients most likely to benefit, if it decides to cover the drug at all. But if Medicare ultimately decides not to cover Aduhelm, or to substantially curtail its use, what becomes of the contingency reserve? 

The Aduhelm situation shines a spotlight on the long-term challenge of how to handle new, high-cost therapies without breaking Medicare’s dwindling piggy bank or reducing incentives for innovation. There is also a short-term political problem for Democrats. While they push forward with BBBA, which they can try to argue addresses some of the long-term challenges of high-cost drugs, few if any of the provisions will take effect before next year’s midterms, meanwhile seniors will absorb the highest ever Part B premium increase first. 

CMS has to adjust premiums to account for anticipated costs, but raising premiums more than double what was expected because of a possible coverage decision that hasn’t been made is hard to swallow (even with a historic cost of living bump padding seniors’ Social Security checks). Policymakers should keep an eye on where those increased premium revenues ultimately end up.