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Social Security COLA goes up in 2018, but so do Medicare Premiums

This year will see one of the largest Social Security cost-of-living adjustment since 2012. However, Medicare premiums are said to increase as well.

Even though the Social Security COLA is not announced until October, inflation trends are pointing to an increase of roughly two percent. Previously, there was zero COLA in 2016 and only a 0.3 percent in 2017.

The cost-of-living adjustments are determined automatically through a formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). From 2013 through to 2015 annual COLA increases have averaged about 1.3 percent. Low COLAs are relatively rare, but 2018 will be an unusual year for retirees.

The last couple of years saw non-protected Medicare beneficiaries paying most of the cost of rising Part B premiums. In 2017 they are paying $134/monthly versus protected beneficiaries who are paying roughly $109/month.

For a retiree receiving the average Social Security benefit of $1,360 per month, a two percent increase would translate into $1387.20 per month. However, Medicare Part B premiums are taken off Social Security. Next year, the impact of Part B premium cost will vary based on the “hold harmless” Social Security provision.

The “hold harmless” law states that the Part B increases must not exceed the amount of the COLA — ensuring that net Social Security benefits do not decrease. This provision applies to roughly 70 percent of those enrolled in Medicare in both programs. The “hold harmless” provision does not include those who delayed filing for Social Security benefits, and possibly some state and federal government retirees. Well-to-do seniors are not protected under the “hold harmless” law.

When the 2018 COLA kicks in it will help spread Part B costs across the total Medicare program, in effect leveling the playing field where non-protected enrollees get lower premiums and protected enrollees will pay more.

Across the board it appears the COLA formula, even with the assistance of the “hold harmless” law, is not able to keep American seniors stable with ever increasing inflation. Rising health care costs threaten to dramatically eat into net Social Security benefits over time. Many seniors may find themselves working longer to delay the number of years of Medicare payments to be made.

Health Coverage Options for Pre-Medicare-Age Spouses

Medicare does not offer coverage for younger spouses or dependent children when the other spouse qualifies for Medicare. No one may receive Medicare benefits prior to the age of 65, unless eligible at a younger age due to a disability. What can be done to cover the younger spouse?

There are some options that may be considered for the younger spouse who is not ready to retire. Those options include planning on working past the retirement age of 65, if that is at all possible, which would permit the younger spouse to continue to be covered under an employer health insurance plan until they are eligible for Medicare.

Failing that option as a possibility, there may be employer options open, such as the employer providing retiree health benefits. This is something that would need to be checked with the benefits administrator along with asking whether or not your spouse may continue under their plan as well. In addition, if your spouse is employed, they may switch to their employer’s provided health care plan.

Individual health insurance through the Health Insurance Marketplace, or Obamacare, may be worth considering as well, especially since the proposed health care plan by the current White House administration did not pass, keeping the health care plan in place. Thus, insurance pricing is currently very competitive. The policies offer comprehensive health coverage, insurers cannot deny coverage or charge extra for pre-existing conditions.

An option to consider is COBRA. If you work for a firm that has 20 or more workers, once you make the change to Medicare, your younger spouse could stay with the company insurance for 18 to 36 months. While this is an expensive option, it may work for you depending on your circumstances. If the company has fewer than 20 workers, continued coverage may be available provided your particular state has what is referred to as “mini-COBRA.”

If your income is below the 400 percent poverty level ($64,080 for couples, $27,520 for individuals) then you may be able to receive a tax credit to reduce the amount you will have to pay for a health insurance policy.

For information on insurance plans in your state visit https://www.healthcare.gov/ or call the toll-free helpline at 800-318-2596.