Column-New Alzheimer’s drug clouds outlook for Medicare premiums next year

FILE PHOTO: A sign marks a Biogen facility in Massachusetts
FILE PHOTO: A sign marks a Biogen facility in Cambridge, Massachusetts, U.S. January 26, 2017. REUTERS/Brian Snyder/File Photo

July 12, 2021

By Mark Miller

CHICAGO (Reuters) – The decision by U.S. drug regulators last month to approve a controversial treatment for Alzheimer’s disease 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.

Biogen Inc’s drug Aduhelm could create hope for millions of older Americans afflicted with Alzheimer’s – if it is effective in combating the disease. But the U.S. Food and Drug Administration (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 does not 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. And the impact on Part B finances could be huge. The premium paid by enrollees – which covers 25% of program costs – could rise sharply. So could the remainder of Part B costs, which are covered by all taxpayers.

Predicting actual costs is speculative at this point due to uncertainty about the number of patients Medicare decides should have access to Aduhelm. But even a conservative estimate of $29 billion annually, from the Kaiser Family Foundation https://bit.ly/3jUrSpM, would nearly double Part B spending on drugs, which totaled $37 billion in 2019. (https://bit.ly/3jUrSpM)

Medicare’s trustees will need to take into account the program’s likely spending on Aduhelm in 2022 as it sets the Part B premium, which typically is announced in November. And the new drug likely will have other impacts on the costs experienced by Medicare beneficiaries.

Many enrollees in traditional Medicare also have supplemental Medigap policies that cover their coinsurance costs. Premiums for those policies could rise as insurers anticipate higher outlays associated with Aduhelm. And 10% of traditional Medicare enrollees do not have supplemental coverage, so they would be subject to the program’s 20% cost-sharing requirement for Aduhelm – roughly $11,500 per year.

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

Medicare typically covers FDA-approved drugs, but it can conduct its own reviews in order to decide which types of patients should be covered. In the case of Aduhelm, Medicare could limit use to patients in the early stages of Alzheimer’s. Just last week, the FDA narrowed its own recommendation for prescription of the drug, saying it should be used only with patients who have mild cognitive impairment or early dementia.

Congress also could step in with legislation that mitigates any impact on Medicare enrollees. More broadly, the unusual FDA approval process and high cost for this drug could add fuel to the debate among legislators about broader drug-pricing reform.

“This gives credence to the argument that the pharmaceutical industry cannot be relied on to deliver value to patients,” said Rachel Sachs, a professor of law at Washington University in St. Louis who wrote about the Aduhelm controversy https://bit.ly/3hrAzX7 recently for the journal Health Affairs. (https://bit.ly/3hrAzX7) 

OTHER PRESSURES

Two other factors could also put upward pressure on the Part B premium next year.

Medicare increased the Part B premium this year 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. That could set the stage for a larger “catch-up” increase this year.

Healthcare utilization is another wild card. Despite the big surge in healthcare utilization last year associated with COVID-19, overall consumption of healthcare services fell dramatically during the lockdown last year. A key question is how this will impact utilization of services by Medicare enrollees next year. Utilization could be higher than normal as the pandemic recedes, putting further pressure on the Part B premium.

THE COLA FACTOR

The Aduhelm drama will play out against the backdrop of another pocketbook issue for seniors next year – the Social Security cost-of-living adjustment (COLA). 

The recent surge in inflation has some forecasters predicting a very hefty COLA next year. The widely watched Consumer Price Index for All Urban Consumers (CPI-U) jumped 5% in May from a year earlier – the biggest gain since August 2008, when it rose 5.3%. The final COLA number will be decided by monthly data during the third quarter for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

But for seniors who are enrolled in both Social Security and Medicare, the key figure is the net COLA after the Medicare Part B premium is deducted. Typically, some portion of the COLA is gobbled up by higher Part B premium costs. (The dollar amount of the Part B increase is deducted from the dollar amount of the COLA.)

Put it all together, and it could be a roller coaster ride this fall for seniors monitoring these pocketbook issues. 

(Writing by Mark Miller; Editing by Matthew Lewis)