The 70 million Americans who rely upon their Social Security benefits won’t like this news. For only the third time in 40 years, there will be no COLA (“Cost of Living Adjustment”) increase in benefits next year.
Even though this is a historically rare event, all years in which there was no COLA have been in the last few years—in addition to 2016, there was no COLA for 2010 or 2011. According to a report from PBS, lower gas prices are primarily blame for dragging down the Consumer Price Index, which is the standard for measuring annual inflation used to calculate COLA’s.
This news is also important if you are turning age 65 next year. The way that the law is set up, new Medicare enrollees may be on the hook for increased Part B premiums, while current recipients will be grandfathered in at current rates. According to PBS:
Most have their Medicare Part B premiums for outpatient care deducted directly from their Social Security payments, and the annual cost-of-living increase is usually enough to cover any rise in premiums. When that doesn’t happen, a long-standing federal “hold harmless” law protects the majority of beneficiaries from having their Social Security payments reduced.
But that leaves about 30 percent of Medicare beneficiaries on the hook for a premium increase that otherwise would be spread among all. Those who would pay the higher premiums include 2.8 million new beneficiaries, 1.6 million whose premiums aren’t deducted from their Social Security payments and 3.1 million people with higher incomes.
Their premiums could jump by about $54 a month; more for those with higher incomes.
Most current Medicare beneficiaries only pay a Part B premium of $104.90 per month, deducted off the top of their Social Security benefits. Therefore the increase described above would mean that new enrollees would pay $154.90 per month for the same benefits, while current recipients won’t pay any more. The annual Part B deductible could rise substantially, from the current annual deductible of $147.00, to about $223.00.
Some have criticized the use of the Consumer Price Index as not reflective of the actual buying power of older Americans. But unless Congress intervenes between now and the end of the year, Social Security and Medicare recipients are set to be squeezed a little more.