Millions of Americans are eagerly waiting to find out how much their Social Security cost-of-living adjustment (COLA) will be for 2023. However, even the most optimistic estimates of the size of the increase probably aren't high enough to offset the actual higher costs that seniors are incurring.
One big reason why that's the case is that Social Security's COLA calculation doesn't include Medicare Part B premiums. And those premiums jumped 14.5% in 2022. But there's potentially some good news for retirees: Lower Medicare Part B premiums could be on the way.
A biotech's bad news is good news for Medicare Part B
You might wonder how Medicare Part B premiums could possibly decline. After all, inflation is higher than it's been in four decades. Nearly everything you buy these days is more expensive.
To answer that question, we first need to understand why Medicare Part B premiums jumped so much in 2022. The Centers for Medicare and Medicaid Services (CMS) identified several reasons for the steep increase in November 2021. The one that got the most attention, though, was that the agency anticipated potentially significant cost increases related to Biogen's (BIIB 0.38%) Alzheimer's disease drug Aduhelm.
Biogen won U.S. Food and Drug Administration (FDA) approval for Aduhelm in June 2021. The biotech company set an initial price tag for the drug at $56,000. An estimated 6.5 million Americans age 65 and older have Alzheimer's disease. The increased cost to CMS to pay for Aduhelm would have been enormous.
However, the wheels fell off the cart for Aduhelm. In April 2022, CMS announced that it was effectively limiting coverage for the drug only to Medicare patients in authorized clinical trials. Less than a month later, Biogen slashed its sales efforts for Aduhelm, all but relegating it to the trash heap in the U.S.
These developments set the stage for an important decision by U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra. In a public statement, Becerra said that Medicare Part B premiums will be "adjusted downward" because the previous projections of higher costs associated with Aduhelm are no longer applicable.
The big question
Don't pop the corks on the champagne bottles just yet, though. There's still a big unanswered question: Will Medicare Part B premiums actually be lower in 2023 than they are in 2022 or will only the rate of increase be lower than it would have otherwise been? We won't know the answer to this question until the fall.
Becerra stated that he had initially hoped to cut Medicare Part B premiums sooner after the cost savings from not having to pay for Aduhelm were calculated. However, CMS determined that this wasn't a viable option. Instead, the decision was made to pass along the savings to Medicare beneficiaries in the 2023 Part B premiums.
It's within the realm of possibility that next year's Medicare Part B premiums could be lower than they are now. Perhaps the Aduhelm-related savings will more than offset all other factors contributing to higher premiums.
There's also a chance that Medicare Part B premiums will remain at current levels. CMS hasn't hiked Part B premiums in four out of the past 20 years.
However, probably the safest bet at this point is that the Medicare Part B premium increase for 2023 will be relatively modest. But it will without question be well below what it would have been had CMS decided to fully cover Aduhelm. That's still good news for retirees.