Social Security recipients will receive the highest cost-of-living adjustment (COLA) in 5 years, effective January 1st. The Social Security Administration recently announced a COLA of 2%. While the boost is critically needed for almost 61.5 million beneficiaries to maintain their purchasing power, the 2% COLA extends a disturbing 8-year pattern of low COLAs that have been far below the 4% average established in the decade prior to 2010 and the Great Recession.
In recent years, inflation and COLAs have been virtually flat, averaging just 1.1% per year since 2010 — with no COLA at all in 2016 and just a 0.3% COLA in 2017. Slow growth in Social Security benefits, particularly when it continues over a period as long as 8 years, has a very significant impact on the overall amount of lifetime income that retirees can expect from Social Security. When retiree costs climb while benefits remain flat, people wind up having to dig more deeply into retirement savings (if they have any), spending more quickly than anticipated. Many people without other pensions or savings are forced into debt. About one in four low-income older Americans is dependent on programs that provide assistance with essentials like food and healthcare costs.
The 2% COLA will raise the average Social Security benefit (currently $1,258) about $25. But the overwhelming majority of Social Security recipients will never see it. Medicare Part B premiums for most people will rise considerably and completely offset the COLA increase, after being held at lower adjusted levels, as required by law, over the past two years when there was no COLA. This provision of law that protects Social Security benefits from reductions is known as the “hold harmless” provision.
Individuals with incomes below $85,000, and whose Part B premiums are automatically deducted from their Social Security benefits, are protected from a reduction in their Social Security benefits when Part B premiums increase more than their Social Security benefits. The provision was triggered twice in recent years, in 2016 when there was no COLA, and in 2017 when the COLA was just 0.3%.
Example: Let’s say Sally had a Social Security benefit of $1,000 in 2015. The Part B premium that year was $104.90. In 2016 there was no COLA, and Sally continued to receive $1,000. But the Medicare Part B premium in 2016 increased to $121.80 per month. Sally’s Part B premium was adjusted downward and she continued to pay the same $104.90 Medicare Part B premium that she paid the previous year, to prevent a reduction in her Social Security benefits in 2016.
In 2017, there was a tiny 0.3% COLA and raising Sally’s benefit $3 from $1,000 to $1,003. But in 2017 the Medicare Part B premium took a stiff jump to $134. Once again, because the COLA was so low, Sally’s share of the Medicare premium was adjusted downward so that her Social Security benefit would not be reduced. However, virtually all of her $3.00 per month COLA was put toward the increased Part B premium, and today Sally pays a monthly Part B premium of $107.90.
In 2018 Sally will finally get a COLA of 2% raising her monthly benefit of $1,003 by $20.10 to $1,023.10. However, if Medicare Part B premiums would be $134 per month in 2018 — Sally would need a COLA of $26.10 to cover the full cost of Part B premiums. Because Sally’s benefit only increased $20.10, the increase in her Part B premium cannot exceed that amount. Thus Sally will continue to receive hold harmless protection and her monthly Medicare Part B premium would be adjusted downwards to $128.00 ($107.90 + $20.10) to avoid reduction of her Social Security benefit.
Depending on the size of COLAs and the amount of the Medicare Part B premium increase in following years, it may well take Sally another year, possibly even longer, to see any increase in her net benefit. Meanwhile Sally’s other household costs have made big jumps.
TSCL strongly supports legislation that would provide a minimum COLA in years when inflation is below average — such as the Guaranteed 3% COLA Act (H.R. 991) sponsored by Representative Eliot Engel (NY-16). How are low COLAs and higher costs affecting you? Let your Members of Congress know! Call 1-844-455-0045.