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Cheaper Medicare... Because of a Botched Drug Rollout
The Biden administration claimed another healthcare victory on news that Medicare premiums and deductibles were decreasing in 2023 for the first time in more than a decade.
However, this may just be political posturing. Ahead of midterm elections, Democrats are hard at work demonstrating an ability to control costs due to healthcare and inflation. This reduction in Medicare premiums and deductibles, however, may not actually be the result of any legislative success or sign of changing trends in the healthcare space.
How Much Cheaper is it Getting?
The drop in premiums applies to members of "Traditional Medicare", which is administered directly by the federal government via the Centers for Medicare and Medicaid Services (CMS). These changes might not be applied to Medicare Advantage (MA) plans, which are private health insurance plans which contract with CMS to provide Medicare benefits.
Traditional Medicare consists of Part A and Part B. Part A covers care in inpatient settings -- which is the type of care you get when in a hospital bed. Most Americans who have paid income payroll taxes for at least 10 years do not have to pay a premium or deductible for Part A.
On the other hand, Part B covers outpatient care, which does not require hospitalization. This includes many primary care and specialty care services, preventative treatments, and diagnostic screenings. For Part B, members of Traditional Medicare pay a premium and a deductible.
According to a CMS fact sheet, the premium for Part B is decreasing $5.20, from $170.10 to $164.90 monthly. This translates to over $60 in annual savings.
Deductibles for Part B will also go down -- from $233 to $226.
While these marginal decreases in healthcare costs may be appreciated for some, it is far from a significant drop in Medicare costs. What's even more surprising is the reason for the decrease in premiums.
How this Ties Into Alzheimer's
In 2022, Part B premiums shot up 14.5%, going from around $148 to $170, one of the largest annual increases in premiums seen in Part B Medicare's history.
The reason? Medicare was covering a new Alzheimer’s drug named Aduhelm. It's the first time in 20 years that the Food and Drug Administration (FDA) has approved a drug for the condition.
Alzheimer's disease is a particularly complex and slow brain disorder which destroys memory and thinking abilities. Later stages of the disease may leave patients incapable of basic tasks like holding conversation. It's a particularly emotionally challenging disease for loved ones to witness and has inspired haunting artworks like Everywhere at the End of Time depicting the disorderly deterioration of patients.
Alzheimer's is the seventh leading cause of death in the US. As brain tissue shrinks, bodily functions shut down, and many die of malnutrition, dehydration, and infection as a result of this loss of brain function.
Aduhelm, a drug produced by the pharma company Biogen, like most other treatments, cannot cure Alzheimer's, but it does claim to slow the cognitive decline of patients. Given as a monthly infusion, mixed data on its effectiveness led to controversy over whether Medicare should cover the drug.
The Medicare system has been under heavy pressure to adopt it, since Alzheimer's affects individuals of older ages. As a program covering seniors over 65 years of age, it's no wonder that covering an Alzheimer's drug is a large priority.
However, Biogen also set a high price at the start. At around $56,000, the company had to halve the cost, and even then in early 2022, there was limited evidence of positive effects on patients with significant safety concerns. In the end, CMS granted extremely limited coverage for the drug early in 2022.
Due to less-than-expected spending on the drug, it's no surprise that Medicare was able to reduce premiums for 2023. The lower coverage of the drug means lower medical costs to offset with premiums.
So What's Next
Yesterday, a late stage clinical trial of another drug, lecanemab by Biogen and Eisai, was just announced to reduce cognitive decline by 27%. With more details coming by November, it seems like a second opportunity for Biogen to succeed with developing a similar class of Alzheimer's drug after Aduhelm's problematic rollout.
As these crucial drugs make their way through the regulatory approval process, it's important to address how this will end up affecting affordability of care.
Research and development costs are high, and it's not going to be shocking if these pharmaceuticals set high prices for the Medicare program. The recent Inflation Reduction Act's provisions giving Medicare power to negotiate prices for some drugs from 2026 may have an impact on lowering costs for members, but what about other areas of concern.
If the cost of the entire Part B Medicare premium was swayed by the introduction and limited adoption of an expensive drug, how far could improved administrative efficiencies and care coordination go in reducing the cost on members? It highlights that even incremental changes in the Medicare system can end up making noticeable changes to the costs faced by the taxpayer and member.