Why the Medicare Part B premium will soar next year

. . . and how the premium will impact the Social Security COLA

Medicare announced a whopping 14.5% increase in the standard Medicare Part B premium for 2022 - the biggest since 2010. That will reduce the net amount of Social Security COLAs next year by varying amounts, depending on your benefit level (more on that in a minute).

In part, the huge Part B hike stems from rising prices and utilization of health care, Medicare officials said. But two unique factors also played contributing roles. 

Last year, Medicare increased the Part B premium (for 2021) by just $3.90, to $148.50 per month. But the increase actually was on track to be larger - Congress stepped in to cap it at 25% of whatever it would have been if Medicare had followed the usual formula, as part of a COVID-19 relief bill. So, this year’s premium plays catch-up on the foregone increase for 2021.

The other major driver of the 2022 premium increase is Aduhelm, the controversial drug approved by the U.S. Food and Drug Administration (FDA) in June for the treatment of Alzhemer’s disease. The FDA approved the drug despite objections from its own scientific advisory panel, which voted nearly unanimously that clinical trials did not demonstrate its effectiveness.

Medicare typically covers FDA-approved drugs - but this one comes with an eye-popping price tag set by its maker - $56,000 per patient annually. That figure is about ten times more than the drug’s estimated value, according to one independent expert review - and it doesn’t include other associated care that could add tens of thousands of dollars of additional costs. 

Aduhelm will be administered by healthcare providers, and thus will be covered under Part B, rather than the Part D prescription drug program.

Medicare says it needs to build a “contingency reserve” against the possible costs incurred by Adulelm. But Medicare is conducting a review to determine whether it will cover Aduhelm - which already is on the market. It would be highly unusual for Medicare to deny coverage for a drug that has been green-lit by the FDA. But in the meantime, few doctors are prescribing the drug, and commercial insurers are resisting covering it.

The Aduhelm mess could turn up the heat in Washington to curb prescription drug costs, and to expand help with drug costs for lower-income seniors.

At this writing, negotiations in Congress over President Biden’s Build Back Better bill would limit the amount that Medicare patients pay out of pocket for drugs, restrict annual drug price hikes and open the door a bit to allow Medicare to negotiate drug prices with pharmaceutical companies. 

The net Social Security COLA

In October, we learned that the faster pace of inflation translated into a historic 5.9% Social Security cost-of-living adjustment (COLA) for 2022 - the largest since 1982.

Social Security COLAs are determined by an automatic formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But most retirees receive both Social Security and Medicare benefits, and the Part B premium typically is deducted from Social Security checks. So the important figure is the net COLA, adjusted by the dollar amount of any increase in the standard Part B premium. That means this year’s huge Part B hike impacts COLAs very differently, depending on the size of their Social Security benefit.

For example, if you have a $2,500 monthly Social Security benefit, your net COLA for next year is still 5%. But if you have a neighbor with a benefit of $1,500, the COLA shrinks to 4.5%. And the reduction is absolutely brutal for very low-income beneficiaries - someone with a $600 benefit will get only a 2.3%. 

Even if you’re lucky enough to get 5% or more, that will only partly offset rising food, rental housing, home ownership, home heating oil and natural gas and prescription drug prices - all are areas of worry next year.

What’s more, this COLA math isn’t relevant for all Medicare beneficiaries. Some people just pay the Part B increase, full stop. This group includes people delaying their Social Security claim to boost monthly benefits, new beneficiaries, and anyone subject to Medicare’s income-related monthly adjusted amounts (IRMAA). Those also jump 14.5% next year.

Social Security offices on track to reopen in January

The Social Security Administration has announced plans to begin reopening its vast national network of field offices to the public in January following a 20-month COVID-19 shutdown. The reopening will give the agency a needed opportunity to improve public service, but also presents some thorny challenges. Learn more in my Reuters Money column.

What I’m reading

Medicare’s open enrollment season is open season for scammers . . . More same-sex couples may be eligible for Social Security benefits . . . Covid-19 pushed many Americans to retire - the economy needs them back . . . What are the odds that they’ll go back to work?