Get Ready for Benefits Squeeze in 2024
Things don’t look good for Social Security benefits next year. It’s not a disaster but still cause for concern. I’ll lay out the reasons, but today’s message is to urge you to make like a squirrel and start putting aside funds now to get ready for colder financial weather.
Social Security’s annual cost of living adjustment (COLA) will be much smaller than this year’s 8.7 percent. The Federal Reserve has been hiking interest rates and this has helped bring down the rate of inflation. This is mostly good news but will lead to a smaller benefits bump in 2024.
Whether the COLA is big or small, it rarely matches the impact of inflation on the things that older Americans buy, due primarily to our higher health spending. But a big COLA can help people with fixed expenses on mortgages and installment debts. Food and medical inflation continue to be unacceptably high, but many households can substitute lower-priced items or simply skimp a bit to afford the higher cost of other things they must buy.
One of the biggest components of monthly Social Security spending is the automatic withdrawal of Medicare premiums for Parts B and D. If you’ll recall, the monthly Part B premium dropped for most people to $164.90 from $170.10 in 2022. This is not going to happen next year and, in fact, there’s a good chance that higher Medicare spending will result in a large boost in Part B premiums, which help pay for doctors, other outpatient expenses, and medical equipment.
The causes for this year’s decline and next year’s increase are one and the same: costly new drugs to treat mild versions of Alzheimer’s. These would be administered in an outpatient setting and thus would be covered by Part B of Medicare and not in Part D drug plans, which cover self-administered medications.
Medicare jacked up Part B premiums in 2022 in anticipation that the U.S. Food & Drug Administration would give the green light to an expensive new antidementia drug, Aduhelm. FDA approval almost always leads to Medicare coverage, and the agency said it was raising premiums in anticipation.
However, the drug was not judged to be of sufficient therapeutic value and was approved for coverage only in limited clinical trials. This decision occurred mid-year, and Medicare gamely and lamely maintained it couldn’t change premiums during a calendar year.
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This time around, there are two antidementia drugs in the FDA queue – donanemab and leqembi. Both are considered more promising than Aduhelm and full FDA approval of one or both is expected.
The Kaiser Family Foundation ran the numbers for leqembi, using the announced list price of $26,500 a year. If 5 percent of Medicare enrollees took the drug, the hit to Part B costs would be nearly $9 billion. If 10 percent did so, this would double to nearly $18 billion. To put this in perspective, Kaiser noted, the combined cost of the top 15 drugs covered by Part B in 2021 was $16 billion, and all Part B drug spending was $40 billion.
It's not known how many people with Medicare would be approved to take either drug, but there is understandable pressure from throughout the patient and aging communities to adopt liberal coverage standards. Doing do would further elevate Part B premiums.
We’re not done yet with higher expenses for wildly popular and expensive drugs. The support for covering highly effective weight-loss drugs is as strong as for antidementia meds. Part D of Medicare currently does not cover weight-loss drugs and the tab for them would exceed that of donanemab and leqembi.
Kaiser also did a study of these new medications, which already have been approved to treat type 2 diabetes. “Novo Nordisk’s Ozempic and Wegovy (semaglutide) and Eli Lilly’s Mounjaro (tirzepatide), are also highly effective weight loss agents,” Kaiser’s Tricia Neuman and Juliette Cubanski wrote (they also co-authored the cost assessment of antidementia drugs).
“According to a recent study, if 10 percent of Medicare beneficiaries with obesity use Wegovy, the annual cost to Medicare could be $13.6 billion (based on a 19 percent obesity rate from traditional Medicare diagnoses in 2021) to $26.8 billion (based on a 41.5 percent obesity rate from survey data for adults ages 60 and older).” For comparison, they noted, total Part D spending in 2021 was $98 billion.
It’s not known if or when these drugs will be covered by Part D, and Kaiser’s experts note that the costs of these drugs could be brought down by in the Inflation Reduction Act, which was enacted last year. The drugs could be included among the small list that Medicare chooses under the law’s mandate permitting it to negotiate the price of drugs. However, this wouldn’t reduce prices for several years.
“Another provision would subject weight-loss drugs to the new law’s inflation rebate that aims to limit annual increases in drug prices,” they said. “A third provision of the law will cap out-of-pocket Medicare Part D spending for covered drugs at $2,000 in 2025, which would certainly help to make these drugs more affordable. But even paying $2,000 out of pocket would still be beyond the reach of many people with Medicare who live on modest incomes.”
Part D premiums are also deducted from most people’s monthly Social Security payments. While the status of Medicare coverage for weight-loss meds is clearly up in the air, it makes sense to plan for higher Part D premiums next year, not to mention higher out-of-pocket drug spending.
The downside of following my advice is that you may have to tighten your belt for no reason. But I don’t think so.
Journalist Philip Moeller has written for newspapers and magazines and is the principal author of Simon & Schuster’s Get What’s Yours series of books about Social Security, Medicare, and health care. He is working on a new edition of his Medicare book.