Officials Say Substantial Social Security Cola Will More Than Offset The Monthly Hike
by Dena Bunis, AARP, November 12, 2021
designer491 / Alamy Stock Photo
Medicare’s Part B monthly premium for 2022 will increase by $21.60, the largest dollar increase in the health insurance program’s history, the Centers for Medicare & Medicaid Services announced on Nov. 12. Standard monthly premiums for Part B will cost $170.10 in 2022, up from $148.50 in 2021.
Medicare Part B covers doctor visits, and other outpatient services, such as lab tests and diagnostic screenings. CMS officials gave three reasons for the historically high premium increase:
CMS officials stressed that while the 14.5 percent Part B premium increase is a stiff one, the Social Security cost-of-living adjustment at 5.9 percent, the largest in 30 years – is estimated to average $71.40 per recipient. So even after the increase in the Medicare Part B premium, most Social Security recipients, whose Part B premiums are typically deducted from their Social Security benefits, will still see a net increase in their monthly check. The COLA goes into effect in January.
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Medicare Part B Premium Jumps 145% Biggest Increase Since 2016
2022 Part B Medicare Premium to rise from $148.50 to $170.10 per month, an increase of 14.5%.
Washington D.C. November 13, 2021
A 14.5 percent jump in the Medicare Part B premiums for 2022 spells trouble ahead for beneficiaries wondering where the money will come from to pay all the bills, warns The Senior Citizens League . “The Part B increase from $148.50 to $170.10 per month is the highest since 2016 and will consume the entire annual cost of living adjustment of Social Security recipients with the very lowest benefits, of about $365 per month,” says Mary Johnson, a Social Security and Medicare policy analyst for The Senior Citizens League. “Social Security recipients with higher benefits should be able to cover the $21.60 per month increase, but they may not wind up with as much left over as they were counting on,” Johnson says.
Johnson has found that rising Part B premiums have ranked as one of the fastest growing costs that older Americans face in retirement, increasing 274 percent since 2000.Because Medicare Part B premiums are automatically deducted from Social Security benefits, they consume a growing share of Social Security and other retirement income over the course of a retirement. This often leaves those retired the longest, along with households without adequate savings, in a real bind.
The chart attached chart illustrates the percentage of responses for each of five spending points.
Social Security Recipients Could Get $92 Richer Per Month In 2022
Many seniors rely on Social Security to cover the bulk of their living expenses. But that’s actually problematic.
For an average wage-earner, Social Security will replace roughly 40% of pre-retirement earnings. Most seniors, meanwhile, are advised to replace their income at a rate of 70% to 80%.
Having that extra income is crucial given the rise in senior healthcare costs through the years. And so those who depend heavily on Social Security often find themselves struggling financially.
Meanwhile, seniors recently got some good news on the Social Security front. Inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers shows that the cost of living rose substantially during 2021’s third quarter. The result? Seniors on Social Security are in line for the largest cost-of-living adjustment they’ve seen in decades.
In fact, 2022’s COLA will amount to 5.9%. Seeing as how the average beneficiary today collects about $1,559 a month, that means the typical recipient could get a pay raise equal to $92 per month. But there’s more to the story than that.
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Experts Say Social Security Benefits Increase Won’t Do Much For Retirees
According to the Senior Citizens League, seniors have been faced with COLAs that are too low for decades, which has had a cumulative effect that’s resulted in a disastrous loss of buying power.
While benefits have gone up by 55% during the past 21 years, housing costs saw close to a 118% jump during the same period while healthcare costs were up 145%. Retirees tend to spend an outsized percentage of their income on these two main expenses, neither of which is accurately accounted for when Cost of Living Adjustments are calculated.
Housing and healthcare expenditures are undercounted because the Consumer Price Index for Urban Wage Earners and Clerical Workers is the metric used to determine how much COLAs should be. And senior spending habits differ from those of urban wage earners and clerical workers in important ways.
Unfortunately, the large raise in 2022 isn’t going to be enough to make up for decades of inadequate COLAs. And, while a 5.9% benefit increase may seem generous to retirees who’ve never experienced anything close to it, Mary Johnson, a Social Security and Medicare policy analyst for The Senior Citizens League, believes that even this large benefit increase may be inadequate to keep pace with the actual price increases seniors could see next year.
Social Security Checks Getting Big Boost As Inflation Rises
WASHINGTON Millions of retirees on Social Security will get a 5.9% boost in benefits for 2022. The biggest cost-of-living adjustment in 39 years follows a burst in inflation as the economy struggles to shake off the drag of the coronavirus pandemic.
The COLA, as its commonly called, amounts to an added $92 a month for the average retired worker, according to estimates Wednesday from the Social Security Administration. Its an abrupt break from a long lull in inflation that saw cost-of-living adjustments averaging just 1.65% a year over the past 10 years.
With the increase, the estimated average Social Security payment for a retired worker will be $1,657 a month next year. A typical couples benefits would rise by $154 to $2,753 per month.
But thats just to help make up for rising costs that recipients are already paying for food, gasoline and other goods and services.
It goes pretty quickly, retiree Cliff Rumsey said of the cost-of-living increases. After a career in sales for a leading steel manufacturer, Rumsey lives near Hilton Head Island, South Carolina. He cares at home for his wife of nearly 60 years, Judy, who has advanced Alzheimers disease. Since the coronavirus pandemic, Rumsey said he has also noted price increases for wages paid to caregivers who occasionally spell him and for personal care products for Judy.
This one-time shot of COLA is not the antidote, he said.
Are Part A Premiums Increasing In 2021
Roughly 1 percent of Medicare Part A enrollees pay premiums the rest get it for free based on their work history or a spouses work history. Part A premiums have trended upwards over time and they increased again for 2020 although they are actually lower in 2020 than they were in 2010.
For 2021, the Part A premium for people with 30+ quarters of work history is projected to be $263/month, up from $252/month in 2020. And for people with fewer than 30 quarters of work history, the premium for Part A is projected to be $478/month in 2021, up from $458/month in 2020. The exact amounts will be finalized by CMS in late 2020.
The Second Shoe Dropmedicare Increase
Medicare Part B premium is the second shoe to drop in October each year. Two years ago during the COVID pandemic Congress froze the premium at the base amount of $148.50. This year they could have caught up, but only increased it by one year.
This years base amount is going up $24 to $170.10. Those earning more the $91,001 or $182,001 will pay more but for most of us, $158.50 is the number that will be deducted from our Social Security check come January.
Now not everyone pays the base rate.
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Your Prescriptions May Be Getting Pushed Into A Higher Tier
All Medicare Part D drug plans have a formulary that groups medications by tiers. The higher a tier your prescriptions fall into, the more they’ll cost you.
Even if you’ve kept the same Part D plan for 2022 as you have currently, plan formularies can change from one year to the next. And if you didn’t read your plan’s change notice carefully, you could be in line for some sticker shock once the new year rolls around.
Will My Medicare Supplement Insurance Premiums Go Up
Medicare Supplement Insurance, or Medigap, provides coverage for certain Medicare Part A and Part B out-of-pocket expenses like deductibles, coinsurance and copayments.
The average a Medigap plan premium in 2018 was $125.93 per month.2
This cost figure is weighted, which means that some Medigap plans in some areas may offer lower premiums than what is listed above. Some 2021 Medigap plan premiums may also be higher.
Each type of Medigap plan offers a different combination of standardized benefits. Plans with fewer benefits may offer lower premiums.
Other factors such as age, gender, smoking status, health and where you live can also affect Medigap plan rates.
Medigap premiums can increase over time due to inflation and other factors, so you can typically expect Medigap plan premiums to be higher in 2022 than they will be in 2021.
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Your Social Security Cost
- Social Security’s cost-of-living adjustment for 2022 will be 5.9%, the highest in decades.
- Yet high inflation and more expensive Medicare Part B premiums will limit just how much more beneficiaries could see in their monthly checks.
- You can take steps now to protect your income by being strategic about your Medicare coverage and planning ahead for how higher benefits could affect your taxes.
Despite the biggest cost-of-living adjustment in decades, Social Security beneficiaries may still find it challenging to make their monthly checks stretch farther next year.
The reasons: Inflation is continuing to drive up consumer prices, while standard Medicare Part B premiums will rise by 14.5% in 2022 in a bigger-than-expected jump.
The Consumer Price Index, a government measure for the change in prices over time, climbed 6.2% year-over-year in October, marking the biggest inflation increase in 30 years.
Standard Medicare Part B premiums will be higher next year as well, due in part to a new, expensive Alzheimer’s drug.
That could affect how much people from Social Security’s 5.9% cost-of-living adjustment for next year.
“Inflation is still running ahead of the COLA amount right now,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, a nonpartisan senior group.
“If inflation moderates, buying power may improve,” she said.
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Did Medicare Part D Costs Go Up In 2021
Medicare Part D plans provide coverage exclusively for certain retail prescription drugs.
Medicare Part D plans are sold on the private market. Premiums for Part D plans have been on the decline in recent years.
The average Part D premium is $41.64 per month in 2021.2
Part D plans use an IRMAA surtax for beneficiaries who earn a higher income.Medicare Part D IRMAA
More than or equal to $500,000
More than or equal to $750,000
More than or equal to $412,000
$77.10 + your plan premium
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Are There Inflation Adjustments For Medicare Beneficiaries In High
Medicare beneficiaries with high incomes pay more for Part B and Part D. But what exactly does high income mean? The high-income brackets were introduced in 2007 for Part B and in 2011 for Part D, and for several years they started at $85,000 . But the income brackets began to be adjusted for inflation as of 2020, with the start of the high-income range increasing to $87,000/year . For 2021, these thresholds have increased to $88,000 for a single person and $176,000 for a married couple .
For 2021, the Part B premium for high-income beneficiaries ranges from $207.90/month to $540.90/month, depending on income .
As part of the Medicare payment solution that Congress enacted in 2015 to solve the doc fix problem, new income brackets were created to determine Part B premiums for high-income Medicare enrollees. These new brackets took effect in 2018, bumping some high-income enrollees into higher premium brackets.
And starting in 2019, a new income bracket was added on the high end, further increasing Part B premiums for enrollees with very high incomes. Rather than lumping everyone with income above $160,000 into one bracket at the top of the scale, theres now a bracket for enrollees with an income of $500,000 or more .
How Much Did The Medicare Part A Deductible Go Up In 2021
The Part A deductible does not operate on an annual basis, but rather it is based on benefit periods.
A benefit period begins the day you are admitted to a hospital or skilled nursing facility as an inpatient, and it ends when you have not been an inpatient for 60 consecutive days.
For 2021, the Medicare Part A deductible is $1,484 per benefit period.
This list shows how the Part A deductible has changed in recent years.
- 2021 = $1,484 per benefit period
- 2020 = $1,408 per benefit period
- 2019 = $1,364 per benefit period
- 2018 = $1,340 per benefit period
- 2017 = $1,316 per benefit period
- 2016 = $1,288 per benefit period
- 2015 = $1,260 per benefit period
- 2014 = $1,216 per benefit period
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What About Medicare Advantage
Around one-third of people who have Medicare choose Medicare Part C, more commonly known as Medicare Advantage . Private insurance companies provide these plans, but they must work within the guidelines set by the Centers for Medicare & Medicaid Service . At a minimum, each plan must provide the same benefits you’d get with Original Medicare . However, they are not limited to that coverage and around 90% of these plans provide additional benefits, the most common being prescription drug coverage, routine vision, and dental care.
You can’t avoid the Part B premium by signing up for a Medicare Advantage plan. However, it may still save you money if you choose a plan that includes those extra benefits especially prescription drug coverage, as that will save you from having to join a separate, standalone Part D plan.
There are even some Part C plans that reimburse either all or a portion of your Part B premium. This is known as the giveback benefit or Part B premium reduction. The giveback benefit can range from less than $1 to the full $148.
Not all Medicare Advantage plans offer the Part B premium reduction. In addition, you only qualify for the giveback benefit if you live in a zip code where one of these plans is offered and don’t already receive government assistance to help pay your Medicare costs.
Social Security Fun Facts
Before I get into this years COLA and Part B announcement, here are some facts and statistics from the Social Security Administration that you might find enlightening:.
As of March 2021, there were about 69.7 million people receiving Social Security checks every month.
Nearly 9 out of 10 U.S. citizens aged 65 or older benefit from Social Security.
Social Security keeps 15 million elderly Americans out of poverty.
The average monthly retirement benefit, for 2021, is $1,543 with the maximum benefit being $3,895.
The average disability benefit is $1,277.
At 6 million, California has the highest number of Old Age Survivors and Disability Insurance recipients, with Florida and Texas not far behind.
At 26.7%, Senator Joe Manchins state of West Virginia has the highest percentage of total population living off benefits.
People born in or after 1960 still can receive early retirement benefits at 62 but to receive full retirement benefits they must wait until age 67.
If you wait to take benefits until age 70 your benefit will increase by 8% per year for every year you delay.
U.S. workers retiring after 2035 will receive only about 75% of full benefits.
Yet the Social Security Trust Fund has earned $2.9 trillion in reserves.
Seniors On Social Security Can’t Keep Up
Even though seniors on Social Security are entitled to annual raises, they’ve been losing buying power for a good 20 years, as COLAs have fallen short. This year’s COLA could be the most robust raise seniors have seen in years, based on recent inflation data.
But that’s not necessarily the best news.
While seniors may, in fact, be in line for more money, they may also get hurt by rising living expenses. These days, everything seems to be costing more, including essentials like gas and groceries. And so any raise that seniors get may be instantly offset by the higher prices they’re forced to pay at the pump and the supermarket.
Another issue is that we don’t know if Medicare Part B premiums will rise next year, and if they do, to what extent. In previous years, Medicare Part B premiums have come close to wiping out COLAs, so even if next-year’s raise is impressive on paper, seniors may not get to pocket most of it in practice.
The good news is that the current bout of inflation we’re experiencing may end up being transient. Right now, the demand for consumer goods is up as supply chains struggle to meet it. Once supply increases, prices should calm down.
We won’t get an official 2022 COLA ruling until October, as that number will hinge on CPI-W data from this year’s third quarter. But if recent trends are any indication, it looks like seniors may finally get the large raise they’ve been holding out for. Whether it ends up doing them much good, however, is a different story.