If you are a Social Security beneficiary, you’ve probably grown accustomed to seeing a Cost-of-Living Adjustment—or, COLA—in your benefit at the beginning of each calendar year. Since the start of automatic annual COLA s in 1975, there have only been three years without an increase. Unfortunately, all three of those years have happened since 2010. The most recent lack of increase is coming in 2016, as announced by the Social Security Administration on October 15.
What is COLA?
The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. The percentage increase (or lack thereof) is based on the increase of the Consumer Price Index (CPI) from the third quarter of last year to the third quarter of the current year. If there is no increase in this number, there can be no COLA.
How does this impact your Medicare Part B premium?
A majority of Social Security beneficiaries are also enrolled in the Medicare Part B program. This deduction covers certain medical expenses and comes directly out of the monthly benefit. For example, a majority of beneficiaries paid a monthly premium of $104.90 in 2015.
As of October 19, the Department of Health and Human Services has not yet announced Medicare premium changes for 2016; however, the law contains a “hold harmless” provision that protects approximately 70% of Social Security beneficiaries from paying a higher premium.
Those not protected include higher income beneficiaries and those newly entitled to Medicare Part B in 2016. Those who receive assistance from the state to pay their premiums will see no change to their benefit. The state will be required to pay any Medicare Part B premium increase. For further information regarding Medicare changes for 2016, visit www.medicare.gov.
This COLA announcement has put additional pressure on anyone living on a fixed income. Unfortunately, in our ever-changing economy, nothing is guaranteed. Please take this information and be proactive in planning your coming year.