Most Social Security recipients won’t be seeing much, if any, of the 2% cost-of-living adjustment (COLA) on Social Security benefits announced for 2018.
All or most of the increase, which is roughly $25 for the typical recipient receiving an average $1,250 monthly benefit, will be eaten up by an the increase in Medicare Part B, according to The Senior Citizens League.
Any day now, the Centers for Medicare & Medicaid Services is expected to announce the Medicare Part B premiums for 2018. Medicare's Board of Trustees has indicated that Part B premiums, which cover outpatient medical care such as doctor visits and lab tests, will likely remain stable at about $134 a month next year, but that monthly premium is actually substantially higher than what many Medicare recipients currently pay. Due to a provision in the law, most retirees are “held harmless” from increases in Part B premiums if the increase would reduce their Social Security benefits.
Since Social Security benefits did not rise at all in 2016 and increased just 0.3% in 2017, 70% of Medicare recipients — those with a modified adjusted gross income of less than $85,000 for individuals and $170,000 for couples who have their Medicare premiums deducted from their Social Security benefits — did not pay the $134 a month for Part B. They’ve been paying about $109 per month on average this year, according to Mary Johnson, Social Security and Medicare policy analyst and consultant for The Senior Citizens League.
She provided ThinkAdvisor two examples showing how the Medicare Part B premium increase will eat into Social Security benefits in 2018, dating back to 2016.
A recipient who collects $1,384 in Social Security this year will see her payments increase $27.70 due to the 2% COLA, which is the biggest increase since 2012. But her Medicare Part B premium will jump from $109 to $134, or $25, eating up almost the entire increase in Social Security benefits.
A recipient collecting $1,043 in 2017 will receive an additional $20.86 in Social Security benefits. She won’t have to pay the full $25 additional for Medicare Part B because of the hold harmless provision but will have to fork over her entire COLA to pay the Part B premium. And in 2019, that recipient will have to go through the same process again.
Those recipients earning more than $85,000 for individuals and $170,000 for couples — roughly 30% of Medicare beneficiaries — pay higher premiums for Medicare Parts B and D. While other recipients pay roughly 25% of the cost of those plans, higher income recipients pay anywhere from 35% to 80%, depending on their income. A bill that recently passed the House to reinstate the Children's Hospital Insurance Program (CHIP) would eliminate federal subsidies for those earning $500,000 or more.
Medicare Part B premiums are one of many costs that can erode the value of Social Security payments. Since 2000, Social Security benefits have lost 30% of their purchasing power despite cost-of-living increases, according to a study that Johnson penned for The Senior Citizens League. The study found that although Social Security COLAs increased benefits 43% since 2000, typical expenses for seniors jumped twice that much.
In addition to increasing costs for Medicare Parts B and D, those expenses include Medigap and Medicare Advantage plans and out-of-pocket medical expenses as well as homeowners insurance, real estate taxes and utilities and out-of-pocket medical expenses.