A new Alzheimer's Drug Sheds New Light on the Outlook for Medicare Premiums Next Year July 13, 2021 08:51

The approval of a controversial treatment for Alzheimer's disease by US drug regulators last month could fuel an unusually large increase in Medicare premiums next year, but the outlook is clouded by a number of factors that will play out later this year.

If Biogen's drug Aduhelm is effective in combating Alzheimer's, it could give hope to millions of older Americans suffering from the disease. However, the FDA approved the drug despite objections from its own scientific advisory panel, which voted nearly unanimously that clinical trials did not demonstrate its efficacy.

Medicare typically covers FDA-approved drugs, but this one has an eye-popping price tag set by the manufacturer - $56,000 per patient per year. This figure does not include any additional care that could cost tens of thousands of dollars.

Because Aduhelm will be administered by healthcare providers, it will be covered under Part B rather than the Part D prescription drug program. And the ramifications for Part B finances could be enormous. Enrollees' premiums, which cover 25% of program costs, could rise dramatically. So, too, could the remaining Part B costs, which are borne by all taxpayers.

Predicting actual costs is currently speculative due to uncertainty about how many patients Medicare decides should have access to Aduhelm. However, even a conservative estimate of $29 billion per year from the Kaiser Family Foundation https://bit.ly/3jUrSpM would nearly double Part B drug spending, which totaled $37 billion in 2019.

When setting the Part B premium, which is typically announced in November, Medicare trustees will need to consider the program's likely spending on Aduhelm in 2022. In addition, the new drug is likely to have other effects on Medicare beneficiaries' costs.

Many traditional Medicare beneficiaries also have supplemental Medigap policies that cover their coinsurance costs. Premiums for these policies may rise as insurers anticipate increased outlays related to Aduhelm. Furthermore, because 10% of traditional Medicare enrollees do not have supplemental coverage, they would be subject to the program's 20% cost-sharing requirement for Aduhelm - approximately $11,500 per year.

Out-of-pocket costs would also be an issue for Medicare Advantage enrollees, the privately offered managed care alternative to the traditional program. According to Kaiser, the majority of Advantage enrollees are in plans that charge a 20% coinsurance for Part B drugs provided in-network, mirroring the traditional program; coinsurance rates can be much higher out of network.

Medicare typically covers FDA-approved drugs, but it has the authority to conduct its own reviews in order to determine which patients should be covered. In the case of Aduhelm, Medicare may limit its use to patients in the early stages of Alzheimer's disease. Just last week, the FDA narrowed its own prescription recommendation for the drug, stating that it should only be used with patients who have mild cognitive impairment or early dementia.

Congress could also intervene by enacting legislation that lessens the impact on Medicare enrollees. More broadly, the unusual FDA approval process and high cost of this drug may add fuel to legislators' debate over broader drug-pricing reform.

“This gives credibility to the argument that the pharmaceutical industry cannot be relied on to deliver value to patients,” said Rachel Sachs, a law professor at Washington University in St. Louis who recently wrote about the Aduhelm controversy for the journal Health Affairs.

OTHER FACTORS

Two other factors could cause the Part B premium to rise next year.

This year, Medicare increased the Part B premium by only $3.90, to $148.50 per month. However, the increase was on track to be higher unless Congress intervened to cap it at 25% of what it would have been if Medicare had followed the usual formula, as part of a COVID-19 relief bill. This may pave the way for a larger “catch-up” increase this year.

Another unknown is healthcare utilization. Despite a significant increase in healthcare utilization associated with COVID-19 last year, overall consumption of healthcare services fell dramatically during the lockdown last year. A key question is how this will affect Medicare enrollees' use of services next year. As the pandemic fades, utilization may be higher than usual, putting additional strain on the Part B premium.

THE COLA FACTOR

The Aduhelm drama will take place next year against the backdrop of another financial issue for seniors: the Social Security cost-of-living adjustment (COLA).

Because of the recent surge in inflation, some forecasters predict a very large COLA next year. The widely followed Consumer Price Index for All Urban Consumers (CPI-U) increased 5% year on year in May, the largest increase since August 2008, when it increased 5.3 percent. The final COLA figure will be determined by monthly data for the Consumer Price Index for Urban Wage Earners and Clerical Workers during the third quarter (CPI-W).

However, for seniors who are enrolled in both Social Security and Medicare, the net COLA after the Medicare Part B premium is deducted is the most important figure. Higher Part B premium costs typically consume a portion of the COLA. (The amount of the Part B increase is subtracted from the amount of the COLA.)

When you add it all up, this fall could be a roller coaster ride for seniors who are keeping an eye on their finances.