Could We Have Another Year Without A COLA? Maybe.

Could We Have Another Year Without A COLA? Maybe.

By Mary Johnson, Editor

After receiving no annual cost-of-living adjustment (COLA) this year, many people who depend on Social Security are experiencing greater difficulties affording rising Medicare and other rising household costs. But even though TSCL has received plenty of email confirming retirees’ costs are increasing, both Wall Street economists and yours truly are forecasting that inflation will likely remain low again this year. In fact, according to consumer price index data through November of 2015, I’m currently forecasting that inflation in 2016 is likely to be under 1.5% and may even be too low for a COLA to be payable in 2017, although that could change.

A similar situation occurred 2010. That was the first time there wasn’t a Social Security COLA in the history of the program. And although prices rose during 2010, and inflation was higher than the previous year, it wasn’t high enough for a COLA to be payable in 2011. By law, a COLA can only be paid if current inflation in the third quarter this year, exceeds the third quarter of the last year in which one was paid. In 2016 that means that inflation will need to be higher than the third quarter of 2014.

What about Medicare? A special “hold harmless” provision protects the Social Security benefits of Medicare beneficiaries from reduction when the dollar increase in Medicare Part B premiums is greater than the dollar amount of an individual’s COLA. The government adjusts the Part B premium of protected individuals so that he or she receives the same amount in Social Security from one year to the next. About 70% of Medicare beneficiaries continue to pay a Part B premium of $104.90 per month this year because there was no COLA. The 30% who are not protected under the hold harmless provision pay $121.80 per month in 2016 — a difference of $16.90.

But if there were a small COLA in 2017, then some — but not all — people would face a big jump in Medicare Part B premiums. Here’s an example of how it works. Let’s say that you paid $104.90 per month in 2016, and that there’s a very low COLA of just 1.3% for 2017, and the Medicare Part B premium will be $122.00 — a premium increase of $17.10 from what you paid this year. If your Social Security benefit is $1,315.00 or less per month, then you would continue to be protected by the hold harmless provision, and you would continue to pay $104.90 per month for Part B in 2017. If your benefit is more than $1,315.00, then the entire Medicare Part B premium would be deducted from your benefit. Even if you are protected by hold harmless for Part B, your Social Security benefits can still shrink from rising Medicare Part D or Medicare Advantage premiums.

There’s still plenty of time for things to change, but I don’t think we’re going to see much growth in Social Security benefits quite yet. To read how 15 million Americans dodged spiking Medicare Part B premiums this year, see this article by Elizabeth O’Brien of Market Watch. To tell us how not getting a COLA this year affects your budget, click here.