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  • Writer's pictureChris Stein, CFP®

Many Will Lose the 2018 COLA

The good news this year is it appears that there will be a relatively large (compared to recent years) Cost of Living Adjustment (COLA) coming for 2018 Social Security benefits.  These COLAs are based on inflation as measured by something called the CPI-W inflation measure, which is expected to come in around 1.8% this year.  We will know for sure in about one month when the official number is announced.

The Bad News

The bad news is that Medicare premiums have been recently increasing. Since these premiums are withheld from SS benefits for most people we expect that many SS recipients will actually see no increase in their benefits. The entire increase due to COLA will be absorbed by the higher Medicare premiums.  Let me describe the keys to these calculations:

Medicare and Social Security Benefits

  1. Nearly all SS recipients over age 65 have their Medicare premiums withheld from their SS benefits each month

  2. When Medicare premiums increase, the amount withheld from their SS benefits increase, EXCEPT when they are protected from the “hold harmless” provision. This provision protects SS recipients from seeing a net reduction in their benefits simply due to Medicare premiums.  Basically this means that when there is a Medicare premium increase, it will only apply to you if your SS benefit also had a COLA increase large enough to leave your net benefit at or above its current level. (high income retirees have different rules and are usually not protected from this)

  3. Medicare Part B premiums were about $104 per month in 2016 for those who enrolled that year. Since there was no COLA in 2016, there was no Medicare premium increase

  4. The SS COLA in 2017 was 0.3%, which increased the average SS benefit by about $5 per month. Medicare premiums for 2017 were announced to be $134, but if your SS only went up $5, your Medicare premium increase was capped at $109.  However, new Medicare enrollees in 2017 paid $134 since they were not protected by the “hold harmless” provision.

  5. Medicare premiums are currently expected to stay $134 for 2018 (good news), but if you get a 1.8% COLA on your SS benefit, and were previously protected by “hold harmless” and have been paying $109 per month, you will see an increase in your Medicare premiums.

Increase in Medicare Premiums

For those who have been collecting SS for a few years and have their current Medicare premiums reduced (below $134) due to past “hold harmless” effects, you will need to prepare for being less excited about the SS COLA announcement for 2018 since you will likely see little or none of it hit your bank account.

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