2020 Medicare Premium Could Wipe Out COLA Increase
The 2020 Medicare premium could wipe out COLA increases for the average retiree. The Senior Citizens League predicts that about half of the Social Security cost-of-living adjustment (COLA) will be spent on increases in Part B premiums.
Premiums pay for outpatient healthcare services, such as doctors’ visits and medical supplies/equipment. The league expects that the Part B premium will increase to 144.30 per month.
The average beneficiary collecting $1,460 a month comes to about $23.40 according to the 1.6% COLA for Social Security forecasts. Meaning, the Part B premium increase of over $8 a month will wipe out the entire COLA increase for people collecting $550 (or less) in benefits.
2020 Medicare Premium Could Wipe Out COLA Increase
The new change may put millions of Social Security retirees with low benefits at risk; according to Mary Johnson, a Social Security and Medicare policy analyst for The Senior Citizens League.
She writes, “Roughly four million Social Security retirees with low benefits could be at risk of seeing no growth in their net Social Security benefits in 2020, after the deduction for the rising Part B premiums using these projections”.
The rising costs of health care, housing, and other essentials may become a problem as these retirees won’t have any extra money to pay for them. In a recent survey of about 2,000 individuals 18+ years old was conducted by the Franklin Templeton Retirement Income Strategies and Expectations (RISE).
The results were the same for those young and older. The main financial concern was affording health care costs in retirement. This was also the number 1 retirement-related concern for those 65 years old and older.
Social Security COLA
For the first time in decades, the 2020 responsibilities to retirees and disabled Americans will outweigh the Social Security’s revenue from payroll taxes, benefit taxes, and interest from investments. That means SS is about to shell out more funds than it earns.
The major shift may go on until the SSA’s main trust fund is completely empty in 2035. However, Social Security has another trust fund. While it’s much smaller, it’s also in better shape than previous forecasts.
The Disability Insurance fund (DI Fund) is projected to last 20 years longer than last year’s prediction. The number of disability applications continues to decline since the Great Recession came to an end.
Since 2012, the COLA for last year was at its highest at 2.8%. Over the last ten years, the average for COLA has been 1.4% according to The Senior Citizens League.
Social Security Disability Insurance Program
The Social Security Disability Insurance (SSDI) program reports a $172 billion revenue amount for 2018. The program provides benefits to 8.5 million disabled workers, 119,000 of their spouses, and 1.5 million children of disabled workers.
The claims for SSDI has seen much growth. The economy is stronger and with the brief reallocation of payroll tax revenue, the program is should last longer.
However, analysists believe if the SSDI trust fund runs dry, the program will have enough funds to pay about 91% of benefits. This is contrary to the 96% of likely SSDI benefits prediction made in 2018.
Medicare and Social Security Trustees
In 2018, the U.S. lost $1.1 trillion in operating funds. Tax revenue was $3.3 trillion and $20.5 trillion in the gross domestic product (GDP.)
The GDP is like the nation’s income. Equaling all a country’s income, minus what’s made on activities outside U.S. borders.
Reports made by the new Medicare and Social Security trustees include future casts that expand over the next 75 years. Some reports talk about what the United States may be like in the year 2093, or the time between now and then.
One example, Medicare trustees believe that the U.S. will produce about $1,389 trillion in GDP over the next 75 years. Last year’s predictions are about 7% lower than these numbers.
Trustees also estimate the up-to-date present value of all U.S. GDP until “the end of time” is roughly $3.1 quadrillion.
Another update is the estimate of the “infinite horizon” GDP. With an increase of 23% from the estimate taken last year, analysts are predicting a higher spending amount for enrollees.
Beneficiaries in the future will spend much more on Medicare than they do today in 2019. One example, Part D plans may see an increase in the average deductible amount.
Also, the Part A deductible expenses are going up to $1,420. Finally, Part B increases include the deductible going to $197 and the premium going to 144.30.
The Baby Boomer Generation is Retiring & 2020 Medicare Premium Could Wipe Out COLA Increase
This year’s report includes comments from The Trustees to lawmakers about the upcoming shortfalls. The Trustees advise lawmakers to address these trust fund predictions sooner rather than later.
The idea is to introduce important changes at a progressive pace. Hoping this will give workers and beneficiaries the time they need to adjust. Doing so may allow future generations to add to the revenue increase needs or reductions in benefits.
The future cast of Social Security in 75 years is $13.9 trillion. Payroll taxes must increase by 2.7% to 15.1% or all benefits must reduce to 17% for all current and future beneficiaries or a combination of both approaches may be applied for the two Social Security funds to remain reliable.
“If actions are deferred for several years, the changes necessary to maintain Social Security solvency become concentrated on fewer years and fewer generations,” the Trustees said. Meaning, Social Security won’t be able to pay out to beneficiaries in the future unless they see action soon.
As the baby boomer generation reaches retirement, both Social Security programs are facing demographic turmoil. In 2018, there were roughly 2.8 employees for each Social Security beneficiary.
Between 1974 and 2008 that ratio was 3.2 to 3.4 however, the decline is likely until 2035. Currently, it’ll be 2.2 employees per beneficiary.
The change is directly relating to the full retirement of the baby boomer generation.