Rising Medicare costs leave many U.S. seniors with a flat COLA

CHICAGO (Reuters) - Millicent Graves will get a raise from Social Security next year, but her household budget will get worse, not better.

The 2 percent cost-of-living adjustment (COLA) announced by Social Security for 2018 last month will boost Graves’ monthly benefit by $20.70. But in reality, that increase will be wiped out by a higher Medicare Part B premium, which will be deducted from her Social Security benefit.

The federal government announced last Friday that the standard Part B premium will be $134 per month next year, unchanged from 2017. That sounds like good news at first blush. But for roughly 70 percent of seniors, Social Security benefit amounts will stay flat due to the relationship between the premium and the Social Security cost-of-living adjustment.

Graves is 73 and lives near Williamsburg, Virginia. Her Social Security benefit - a little less than $1,000 after Medicare Part B is deducted - provides roughly half of her total income. The rest comes from retirement savings, which she will use to close the budget gaps next year. “It is frustrating, but I’m lucky in that I can handle it. I know plenty of other people who are living just on Social Security, and it will be hard for them to get by.”

COLAs are determined by an automatic formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). From 2013 to 2015, the annual increases ranged around 1.5 percent. No COLA at all was awarded in 2016; this year, the adjustment was a paltry 0.3 percent.

For most beneficiaries, Medicare Part B premiums are deducted from Social Security. The impact of the Part B premium on net benefits next year will vary due to what is known as the “hold harmless” provision governing Social Security.

By law, the dollar amount of Part B premium increases cannot exceed the dollar amount of the COLA - a feature that ensures net Social Security benefits do not fall. The hold-harmless provision applies to the 70 percent of the Medicare population enrolled in both programs. Those not held harmless include anyone delaying their filing for Social Security benefits, but others affected include some federal and state government retirees. Affluent seniors who pay high-income Medicare premium surcharges also are not protected.

The stingy COLAs of the past two years were rare - but they also set the stage for the odd 2018 situation now facing Graves and millions of others.

THE MATH MATTERS

The recent flat COLAs meant that nonprotected Medicare enrollees shouldered most of the burden of rising Part B premiums; the premiums for this group jumped sharply in 2016 and 2017. This year, they are paying $134 per month, while protected beneficiaries are paying an average of $109.

But the more-generous 2018 COLA will spread higher Part B program costs across the entire Medicare population. That means premiums will stay flat for this year’s nonprotected enrollees, while the protected group will pay more.

“The lower the benefit the lower the Medicare Part B premium people were paying in 2017 and the more they need to reach $134,” said Mary Johnson, a policy consultant at the Senior Citizens League. “The upshot is Part B will take their entire COLA.”

The hold-harmless situation affects people differently according to the level of their Social Security benefit. A held-harmless beneficiary with a $2,000 monthly benefit would still receive a net COLA of $15 next year, for example. But the COLA flattens to zero with a monthly benefit of around $1,250 and below.

The math matters to many seniors living on fixed incomes. Half of all Medicare beneficiaries had income below $26,200 in 2016, according to the Kaiser Family Foundation - a figure that includes Social Security, pensions, retirement account withdrawals, wages, and other miscellaneous income sources.

At the same time, 62 percent of beneficiaries relied on Social Security for more than half of their income in 2015, according to the Social Security Administration; 34 percent relied on the program for 90 percent or more of income. Seniors heavily reliant on Social Security find themselves forced to make tough choices as healthcare consumes a larger share of income.

Graves is a former veterinary technician who also sold real estate for a few years before retiring. She claimed Social Security at the earliest possible age - 62 - to help pay the premiums on her health insurance. Now, she finds a variety of expenses rising sharply, including her Medigap and Part D prescription drug plans, homeowners insurance and utilities.

“I never realized before how people can just work all their lives and then retire and find themselves living on the edge,” she said. “I am not going to starve because of this, but I know people who could.”

(The writer is a Reuters columnist. The opinions expressed are his own.)

(Editing by Matthew Lewis)