Inflation data through April suggests that the annual cost-of-living adjustment (COLA) for 2020 could be very low, perhaps 1.2%. Even though Social Security recipients received the highest COLA since 2012 this year —2.8% — COLAs have averaged a meager 1.4% over the past decade. That’s an unprecedented low rate of growth in Social Security benefits for an unprecedented period of time. From 1999 to 2009, COLAs averaged more than twice that rate of increase, at 3% per year.
A COLA as low as 1.2% increases the risk that Medicare Part B premiums for 2020 would take the entire amount of any COLA increase for many beneficiaries. This would be especially true for any Part B increase around $9.00 per month.
According to the new Medicare Trustee Report released in April of this year, Medicare Part B premiums for 2020 are expected to rise $8.80 from $135.50 to $144.30 in 2020. That would swallow the entire COLA of Social Security recipients with benefits of about $735 or less. According to Social Security data, roughly 4 million low benefit Social Security recipients could be at risk of seeing no growth in their net Social Security benefit due to rising Part B premiums.
And it could be worse if inflation is lower and Medicare Part B premiums are higher. Due to a special provision of law known as the Social Security hold harmless provision, when the dollar amount of the Medicare Part B premium increase is greater than the dollar amount of an individual’s COLA, the Medicare Part B premium is adjusted to prevent a reduction in Social Security benefits from December of the previous year. Those affected by hold harmless wind up with no growth in their net Social Security benefit after the deduction for Part B premiums. That leaves nothing extra left over to deal with other rising costs such as housing and drug costs.
While the Social Security hold harmless provision provides important protection from Social Security reductions, more money is required to catch up to Medicare Part B levels in following years. If COLAs continue to remain low, premiums would adjusted again due to low COLAs. COLAs would have to be substantially higher in following years or the whole process would happen all over again.
The Senior Citizens League supports legislation called the Fair COLA for Seniors Act (H.R. 1553) that would strengthen the annual COLA by tying it to a “seniors” index, the Consumer Price Index for Elderly Consumers (CPI-E), which over time is expected to provide modestly higher benefits than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate the COLA under current law. In addition, TSCL supports legislation that would provide a minimum COLA of no less than 3%. This would provide extra protection in years when inflation is below that amount.
What do you think about ways to strengthen the COLA? Take our 2019 Social Security survey at www.SeniorsLeague.org.