The Social Security Administration announced that 61 million beneficiaries will receive a 2% cost of living adjustment (COLA) beginning with benefits paid in January 2018. That's great news for seniors who received a 0.3% hike in 2017 and no COLA at all in 2016. The 2018 2% hike is based on inflation as measured by the consumer price index. It’s the largest since a 3.6% increase in 2011.
Kiplinger’s recent article, “The Incredible Shrinking 2% Social Security COLA,” reports that Social Security says the average benefit will rise by $27 a month.
Odds are for many that the increase will evaporate with higher Medicare premiums.
There’s a "hold harmless" clause that prevents Medicare Part B premiums—which in most cases are deducted from Social Security benefits—from increasing by more dollars than benefits do. So, when COLAs are small or nonexistent, premiums can't rise as fast as they should to keep pace with rising medical costs. This rule covers most beneficiaries, except first-time enrollees, those who don't have premiums deducted from benefits (because they haven't begun receiving benefits) and those subject to high-income premium surcharges.
The upcoming 2018 COLA means Medicare premiums can go up for everybody. What’s more, those whose costs were held down by hold-harmless in the past might be asked to make up some of the difference.
Because there was no COLA for Social Security in 2016, Part B monthly premiums didn't go up that year for seniors covered by hold-harmless provisions. Rather, the premiums for them stayed static at $104.90. That’s the same as they've been for the past three years. In 2016, Social Security gave recipients a small 0.3 percent cost-of-living increase. Hence, average 2017 Part B monthly premiums rose slightly (to $109) for seniors in the hold-harmless group. The 2017 monthly premium average, paid by those who weren't in this group and who thus pay full price, was $134.
It’s expected that Social Security is expected to ask older adults who paid $109 this year to pay $134 for Part B coverage next year. That’s a bump of $25 a month.
However, there is good news after all of this: under this scenario, those already paying $134 a month for Medicare B will have zero increase in 2018 premiums.
If you’re getting more than the average benefit, the 2% COLA will be worth more than $27. For example, for a married couple receiving a combined $4,000 a month, the 2% hike will boost benefits by $80 a month or nearly $1,000 for the year.
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Reference: Kiplinger (October 16, 2017) “The Incredible Shrinking 2% Social Security COLA”