Social Security announced a 2.0 percent cost of living adjustment (COLA) for 2018 which means that the average retiree will be receiving a whopping $3.28 extra a month even though they have been told that they will be getting about $27.92 extra a month.
How is this possible, you may ask?
Well, the answer is quite simple if you just happen to follow federal regulations that surround Social Security and Medicare.
By law to even receive any Social Security benefit in retirement you must enroll into Medicare when eligible. Failure to do so will result in complete forfeiture of all current, future and even past benefits.
The law also states that the bulk of your Medicare premiums will be deducted directly out of your Social Security benefit each year.
This may not seem like a big deal to those in the financial industry, but the reality is that Medicare premiums, historically, have been inflating at over 7.5 percent, while Social Security’s cost of living adjustment (COLA) is only expected to inflate by a maximum of 2.6 percent for the foreseeable future according to the Social Security Board of Trustees.
For retirees their Medicare premiums have been inflating at a higher cost than their Social Security COLA, but thankfully, there is one more federal regulation must be addressed: The Hold Harmless Act.
Created in 1984, the Hold Harmless Act is designed to protect those who are enrolled in both Medicare and Social Security from ever seeing a reduction in their Social Security benefit due to increases in Medicare Part B premiums in that given year.
So, by 2018, even with Medicare premiums staying flat from 2017 and Social Security’s COLA increasing by as much as 2 percent retirees still got squeezed even with this Act.
Here is what transpired over the last 4 years:
- In 2015 Medicare Part B premiums were $104.90 a month
- Then in 2016 Medicare Part B premiums only inflated by 16.11 percent while Social Security did NOT release a COLA for that year.
- The result: Medicare Part B premiums rose to $121.80 a month, but due to the Hold Harmless Act every retiree was “held harmless”, meaning their Part B premiums stayed at $104.90 a month and their Social Security benefit remained at the same.
- By 2017 Medicare Part B premiums only inflated by 10 percent making that premium cost $134.00 a month while Social Security’s COLA was 0.3 percent or $5.00 on average a month.
- The result: Again, the Hold Harmless Act was implemented, and every retiree realized only a $5.00 a month increase in their Medicare Part B premiums while their Social Security benefit remained the same again for a 3rd consecutive year.
- The issue: Those who were “held harmless” still owed the difference in what Medicare was in 2017, $134.00 a month, and what they actually paid, $109.90 a month.
- Now in 2018 Medicare did not have an increase in Part B premiums while Social Security released a 2.0 percent COLA.
- The result: Retirees who were Held Harmless in 2017 realized an increase in Medicare Part B premiums to $134.00 a month in 2018 which, unfortunately, consumed just over 88 percent of their projected COLA.
Here is a chart that details what happened:
Overview of how Medicare premiums impacted Social Security benefits through the Hold
An example of what 60-year-old person who is looking to retiring at age 66, that earned $75,000 a year while employed can expect to see from their Social Security benefit is:
Impact of Medicare premiums on a retiree’s Social Security benefit throughout retirement
The reality for retirees looking forward is, with Medicare premiums projected to inflate by at least 5.8 percent, according to the Medicare Board of Trustees, and Social Security not expected to have a COLA greater than 2.6 percent, that their realized Social Security benefit will, in fact, never increase.
For a free report on how the high costs of health coverage in retirement will impact your Social Security benefit please contact Craig Cheney at (844) 953-7837 or email at craig@jesterfinancial.com
