Inflation Bites as Medicare Part B Premiums Set to Increase by 14.5% in 2022

ElitePersonalFinance
Last Update: November 20, 2021 Financial News

After the Biden Administration announced on Oct. 13 that Social Security and Supplemental Security Income (SSI) benefits will increase by 5.9% in 2022, the cost-of-living adjustment (COLA) was considered a lifeline for senior citizens dealing with the current bout of U.S. inflation.

For context, the annual COLA is anchored to the U.S. Consumer Price Index (CPI). However, with the headline CPI increasing by 6.2% year-over-year (YoY) in October – the highest YoY percentage increase since 1990 – the 5.9% increase in SSI benefits is not keeping pace with annualized inflation.

To make matters worse, the Centers for Medicare & Medicaid Services (CMS) announced on Nov. 12 that the standard monthly premium for Medicare Part B beneficiaries will increase from $148.50 in 2021 to $170.10 in 2022 (a 14.5% increase). Moreover, the annual deductible – the amount you pay out-of-pocket before your health insurance kicks in – increased from $203 in 2021 to $233 in 2022 (a 14.8% increase).

What’s more, the 14.5% YoY increase in 2022 is well ahead of the 2.7% YoY increase recorded in 2021. And in the summer, the CMS program’s trustees initially estimated that the standard monthly premium would only increase by 6.7%.

Likewise, monthly premiums have increased across all income brackets:

  • For individual beneficiaries with adjusted gross income of $91,000 per year or less, the total monthly premium is $170.10.
  • For individual beneficiaries with adjusted gross income of more than $91,000 per year and up to $114,000, the total monthly premium is $238.10.
  • For individual beneficiaries with adjusted gross income of more than $114,000 per year and up to $142,000, the total monthly premium is $340.20.
  • For individual beneficiaries with adjusted gross income of more than $142,000 per year and up to $170,000, the total monthly premium is $442.30.
  • For individual beneficiaries with adjusted gross income of more than $170,000 per year and up to $500,000, the total monthly premium is $544.30
  • For individual beneficiaries with adjusted gross income of more than $500,000, the total monthly premium is $578.30.

Why Such Large Price Increases?

With inflationary pressures affecting nearly every corner of the U.S. economy, the CMS stated that three factors drove rising Medicare Part B premiums and deductibles in 2022:

    • Due to the higher costs of health care – alongside an expected increase in “the intensity of care provided” – broad-based inflation was considered when the 2022 figures were finalized.

However, the U.S. Bureau of Labor Statistics (BLS) reported that the Medical Care CPI only increased by 1.3% YoY in October, while the Medical Care Services CPI only increased by 1.7% YoY. For context, physicians’ services increased by 3.9% YoY, dental services by 1.2% YoY, and eye care by 0.9% YoY.

In addition, hospital services increased by 4.6% YoY, while elderly care at home increased by 4.3%. However, medical care commodities only increased by 0.9% YoY – with medicinal drugs up by 1.1%. As a result, inflation across the U.S. health care sector is running well below the national average.

  • The U.S. Congress capped Medicare Part B premiums in 2021. Therefore, the 2022 figures increased to reflect the difference.

For example, then-President Donald Trump passed a short-term government funding bill that ensured that the 2021 increase in Medicare Part B premiums would only be 25% of a standard increase. As a result, the small spike has caught up to beneficiaries in 2022.

  • Contingency reserves to cover the potential cost of Alzheimer’s drug, Aduhelm.

Also noteworthy, Biogen is the maker of Aduhelm, and the drug treats patients with mild cognitive impairment or mild dementia. However, Biogen CFO Michael McDonnell said on Oct. 28 that Aduhelm only generated $300,000 in revenue in the third quarter. Moreover, the company’s full-year guidance assumes “minimal Aduhelm revenue in 2021.” However, sales should start “ramping [up] in 2022.”

Conclusion

With inflation taking a bite out of consumers’ wallets in 2021, 2022 looks like more of the same. And with the increase in Medicare Part B premiums tracking ahead of overall inflation, senior citizens will have less disposable income than in prior years. However, once the CMS makes its final decision on Aduhelm, it could consider a premium adjustment. However, the CMS stated that the timing of a formal announcement remains undetermined.

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