Social Security COLA and Medicare Premiums
The Social Security cost-of-living adjustment (COLA) for 2017 was just 0.3%, the lowest percentage increase in history except for years when there was no COLA at all (see chart). The COLA is based on changes in the consumer price index (CPI), as measured from the third quarter of one calendar year to the next. Since the recession, low or no COLAs have been the norm (except for 2012) as a result of low CPI inflation.
Most Medicare Part B beneficiaries won’t see an increase in their Social Security payments because the COLA will be eaten up by an equal increase in the Part B premium. That’s the bad news. The good news is that this amounts to a negligible monthly premium increase from $104.90 to $109.00, on average. Because of the so-called “hold harmless provision” of federal law, Part B premium increases for beneficiaries whose premiums are deducted directly from their monthly Social Security payments cannot exceed the increase in their Social Security benefits.
About a third of Medicare beneficiaries are not so fortunate and will pay significantly higher premiums in 2017. The base monthly premium increased from $121.80 in 2016 to $134.00 in 2017 for individuals with a modified adjusted gross income (MAGI) of $85,000 or less ($170,000 or less for joint filers). Higher premiums, with proportional increases, apply at higher income levels. These increases affect individuals who:
• Enroll in Part B for the first time in 2017
• Don’t receive Social Security benefits
• Are billed directly for Part B premiums
• Have both Medicare and Medicaid, and Medicaid pays premiums
• Have a MAGI above the thresholds for standard premiums
The trust fund for Medicare Part B (medical insurance) and Part D (prescription drug coverage) is required by law to be balanced. About 74% of funding comes from the federal government’s General Fund; much of the rest must come from premiums. This means that as health-care costs rise, premium increases for those who are not protected by the hold-harmless provision essentially subsidize the premiums for those who are protected.
One step you can take to protect your own premium level is to be sure that your Part B premiums are deducted directly from your monthly Social Security payment. You may still see increases, but under current law the increases should not exceed the Social Security COLA. For further information, see medicare.gov.
Sources: Social Security Administration, 2016; Centers for Medicare & Medicaid Services, 2016