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Medicare Premiums and Social Security's Cost-of-Living Adjustments

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Document date: August 12, 2011
Released online: August 16, 2011


Medicare Part B and Part D premiums will soon increase for most beneficiaries, likely consuming much of the cost-of-living increase in their Social Security benefits. Part B premiums do not vary with affordability except for the relatively few single beneficiaries with annual incomes exceeding $85,000 and the relatively few married beneficiaries with incomes exceeding $170,000. Consequently, premium levels and increases are often burdensome at low income levels. Rising health care costs leave the entire population with less to spend on nonhealth goods and services, and older adults are affected most because so much of their income goes to health care.

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In most years, a significant portion of the cost-of-living increases received by most Social Security beneficiaries is devoted to paying for increases in Part B Medicare premiums for physician insurance and Part D premiums for the prescription drug program. That implies that the amount of the benefit that is left over is not keeping up with inflation, and for those retired a long time, the real value of the net benefit can erode significantly. Goda, Shoven, and Slavov (2011) show that the Part B premium went up approximately 1,600 percent between 1975 and 2011, while the cumulative cost-of-living adjustment (COLA) increase was just over 300 percent.1

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Topics/Tags: | Health/Healthcare | Retirement and Older Americans

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