Medicare Part B premiums devouring many retirees' Social Security increase, survey shows

For many of the 47 million older Americans on Social Security, getting a 2 percent cost-of-living increase in their 2018 benefits has been a bust.

More than 40 percent of the over-65 crowd say they have watched the extra amount get completely or mostly eaten up by the cost of Medicare Part B premiums, according to a recent survey by the Senior Citizens League.

Specifically, 25 percent say that after the deduction for the premium, their check is unchanged. Another 18 percent say the increase has been less than $5.

"They've had nothing left over to deal with other increased costs," said Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, which surveyed 1,116 retirees across the country earlier this year.

The reason for the premiums devouring all or much of the extra Social Security amount is due largely to the so-called hold harmless rule that's been triggered in recent years.

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For most retirees — about 70 percent of them — the rule prevents Medicare Part B premiums from rising more than their Social Security cost-of-living adjustment, commonly called COLA.

Higher earners, who pay extra for their premiums, are not protected by the hold harmless rule. (See chart for what higher earners pay.) Nor are certain others, including those who first sign up for Medicare right before an increase takes effect.

For people affected by the provision, the rule means they won't see their Social Security check get lowered in any given year if paying more for Part B would reduce it. (The premiums are typically deducted from Social Security checks.)

When the premium jumped to $134 in 2017 from $121.80 the previous year, 70 percent of Medicare Part B enrollees instead paid an average of $109 due to already being held harmless in previous years with meager COLA increases.

And although the Part B premium hasn't changed from last year's $134, the extra money generated from the 2 percent Social Security COLA for 2018 is going toward the difference between what most recipients were paying and the standard premium amount.

Even for those whose checks are more than last year, just 7 percent said the boost is more than $25.

"Social Security increases, even when they come, are not huge and don't really make any meaningful difference in quality of life," said Kathryn Hauer, a certified financial planner with Wilson David Investment Advisors.

The survey also showed that 7 percent of respondents said their check is lower. Johnson, of the Senior Citizens League, said those people have uncommon circumstances that led to a lower check, none of which are related to the hold harmless provision.

Exactly whether retirees will be shelling out more from their Social Security checks next year for Part B depends both on whether those premiums rise and what the Social Security Administration determines the 2019 COLA will be.

Last July the Medicare trustees report forecast that 2019 Part B monthly premiums will remain at about $134. After that, they are expected to rise about 5 percent each year through 2026. The Centers for Medicare and Medicaid typically announces the next year's premium amount in November.

The 2019 Social Security COLA, meanwhile, is scheduled to be announced in October.