Social Security COLA goes up in 2018, but so do Medicare Premiums

This year will see one of the largest Social Security cost-of-living adjustment since 2012. However, Medicare premiums are said to increase as well.

Even though the Social Security COLA is not announced until October, inflation trends are pointing to an increase of roughly two percent. Previously, there was zero COLA in 2016 and only a 0.3 percent in 2017.

The cost-of-living adjustments are determined automatically through a formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). From 2013 through to 2015 annual COLA increases have averaged about 1.3 percent. Low COLAs are relatively rare, but 2018 will be an unusual year for retirees.

The last couple of years saw non-protected Medicare beneficiaries paying most of the cost of rising Part B premiums. In 2017 they are paying $134/monthly versus protected beneficiaries who are paying roughly $109/month.

For a retiree receiving the average Social Security benefit of $1,360 per month, a two percent increase would translate into $1387.20 per month. However, Medicare Part B premiums are taken off Social Security. Next year, the impact of Part B premium cost will vary based on the “hold harmless” Social Security provision.

The “hold harmless” law states that the Part B increases must not exceed the amount of the COLA — ensuring that net Social Security benefits do not decrease. This provision applies to roughly 70 percent of those enrolled in Medicare in both programs. The “hold harmless” provision does not include those who delayed filing for Social Security benefits, and possibly some state and federal government retirees. Well-to-do seniors are not protected under the “hold harmless” law.

When the 2018 COLA kicks in it will help spread Part B costs across the total Medicare program, in effect leveling the playing field where non-protected enrollees get lower premiums and protected enrollees will pay more.

Across the board it appears the COLA formula, even with the assistance of the “hold harmless” law, is not able to keep American seniors stable with ever increasing inflation. Rising health care costs threaten to dramatically eat into net Social Security benefits over time. Many seniors may find themselves working longer to delay the number of years of Medicare payments to be made.