The 2021 cost-of-living adjustment for Social Security benefits of 1.3% announced recently has been criticized by many advocacy groups as not keeping up with health care expenses.
In the table below, the Senior Citizens League, an advocacy group for retirees, illustrates how the increased costs in Medicare Part B eats away at the COLA, further slamming senior benefits. For higher income beneficiaries — those with modified adjusted gross incomes of more than $87,000, or $174,000 for a couple — this can take even more of a bite.
“Medicare premiums are increasing three to four times faster than the annual cost of living adjustments,” Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, told ThinkAdvisor. “This is going to become an ongoing recurrent issue when the premium is going to increase more than COLAs.
“What we’re saying is this is a signal that the COLA is not doing what it was intended for, which is to protect the buying power of benefits. When other costs are getting to the point where people cannot cover their Medicare Part B premium, that means the benefit itself is reaching inadequate levels.“
Medicare Part B helps pay for doctor visits, diagnostic tests and other outpatient services.
Although the Medicare Part B premium increase for 2021 hasn’t been announced yet, it was estimated by the Trustee Fund to be $8.70, which would be a 6% increase. A Social Security recipient earning the average monthly benefit of $1,503 will receive a 2021 COLA of $19.54.
A “hold harmless” provision protects the vast majority of beneficiaries from net reductions to their Social Security benefits when Medicare Part B premiums increase more than the dollar amount of their Social Security checks.
However, the bad news for many advisory clients is that roughly 5% of Medicare beneficiaries are not protected — higher income beneficiaries, i.e., those who have a modified adjusted gross income of more than $87,000 (individual) or $174,000 (joint filers). They are required to pay income-related surcharges on their Part B premiums, along with the full amount of any increase in Part B premiums.