Projected 2.2% Increase in Social Security Benefits for 2018 Will Effect Medicare Part B Premiums in Many Ways

In June, the Social Security Administration projected that inflation would rise by 2.2% in 2017 and that increase would be applied to benefits in January.  This cost of living adjustment (COLA) increase is very modest but will be welcome coming after two years of almost no increase.   Beneficiaries received only a 3/10% this year.  In 2016, the increase was zero.  The COLA increase has been below 2% since 2011 when it was 3.6%.    Forty years ago during a hyper inflationary period, the increases were 9.9% in 1979, 14.3% in 1980 and 11.2% in 1981.  Those increases led to a crisis in the program with funds about to run short in 1982.  It was then that a famous commission including many top political leaders came up with changes that included raising the retirement age, raising the tax rate and other changes.

Here is a link to a chart of all the yearly increases since Congress enacted the COLA provisions in the 1970s.  https://www.ssa.gov/oact/cola/colaseries.html

Strangely, the COLA increase of 2.2% will lead to a scrambling of Medicare Part B premium increases.   A provision in the law does not allow Medicare premium increases to exceed the Social Security COLA so that benefits are not reduced.  So, most beneficiaries did not see an increase in their Part B premium this year or last.  This hold harmless provision though led to some beneficiaries who were not protected having to pay a much higher Medicare Part B premium since the required increase was spread over fewer people.

Many more beneficiaries will see a Medicare premium increase in 2018 because their Social Security benefits are going up with the COLA.    The Medicare premium increase will be spread over more people and those who didn’t pay any more last year and now pay an average of $109/month will see their rates jump while those who paid a lot more this year with a maximum of $134/month could actually see their premiums go down.

The Social Security Administration will officially announce all these changes  in October.

Current estimates by the Social Security Trustees are that the program still has funds until 2034 to pay full benefits.  After all, the Trust Fund would have to pay less than full benefits without changes.