ORIGINAL MEDICARE
To no surprise, the cost of living keeps going up. Thankfully Social Security recipients can expect an increase in benefits in 2019, courtesy of Cost of Living Adjustment (COLA).
2019 Social Security COLA Increase Will Be Largest Since 2012
COLA reflects the inflation rates and is based on third quarter measurements of the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.
Inflation in July was 3.2 percent, and in August it was 2.9 percent, according to the Bureau of Labor Statistics.
September’s amount will determine if next year’s COLA increase will exceed 3 percent, the largest increase since 2012, when Social Security checks increased by 3.6 percent after two years of no Cost of Living Adjustment increases.
Social Security is fairly consistent with cost of living adjustment increases, the benefits amount for 2018 went up by 2 percent.
While retirees’ benefits checks may keep pace with inflation, there is no comparison to the rising costs of healthcare and housing, both of which are the elderly’s most prominent expenses.
How the 2019 COLA Increase Will Impact Medicare
At the beginning of 2016 rising Medicare costs required a premium adjustment higher, but a lack of inflation meant that Social Security payments wouldn’t get adjusted for that year.
If Medicare would have passed through its higher costs to Social Security recipients, then the check amount would have shrunk.
A little law called the hold-harmless provision prevents that from happening, and instead, Medicare premiums are frozen for Social Security recipients.
The problem got worse in 2017, and then premiums jumped again but COLA for Social Security was just 0.3 percent.
This created a $25 average difference between what recipients were actually paying and what they should’ve been paying.
However, in 2018 the majority of Medicare beneficiaries that were protected under the Hold-harmless provision are now paying the “normal” premium for Part B.
Social Security recipients saw a $27 increase in their monthly check, which was mostly sucked up by their Part B premium.
With the hold-harmless provision fading into the past, many Social Security beneficiaries can expect to enjoy the full increase in their benefits this January.
However, there will still be 1 in 10 recipients that see the impact of hold harmless in 2019.
For those beneficiaries paying the full 2019 Part B premium out of their social security check, you can expect to see around $39 more per month.
How to Calculate COLA
The consumer price index represents prices household pay for various typical goods and services, this doesn’t reflect typical expenditures of senior citizens.
The average benefit check is $1,400 a month, and with a 2.8 percent increase, those retirees could expect to see about $39 more.
This certainly isn’t enough money to cover elderly consumer spending. If COLA was based on a measurement like CPI-E (In the 1980’s and 90’s the government tracked spending for Americans 62 and older and called the index CPI-E), this would be more reflective of elderly consumer spending.
This was an argument between the National Committee to Preserve Social Security and Medicare in 2017.
The CPI-W is a subset of the Consumer Price Index for All Urban Consumers, or CPI-U. Both CPI’S are based on the prices of food, clothing, shelter, fuel, transportation, medical services, drugs, and other goods and services that people buy for day to day living.
The CPI-W represents about 29 percent of the total United States population.
The Buero of Labor Statistics has been running an experimental CPI-E index from 1982 to 2011. The CPI-E rose at an average annual rate of 3.1 percent, compared to 2.9 percent for the CPI-W. Which, over the course of 20 years would make a big difference.
The largest difference was accounted for by escalating health care inflations and the fact that seniors consume more medical services.
According to Social Security, Social Security checks account for 33 percent of income for elderly Americans. Nearly half of married retirees derive half their income from Social Security.
For many seniors, Social security is 90 percent of their income; 21 percent for married retirees and 44 percent for single retirees.
There Could Be a Higher Rate Increase
For the increase to drop to 2.8 percent for the quarter, the month of September would need to be a low inflation rate of 2.3 percent. This is something economists do not expect.
Many are expecting two more rate increases this year, but a litany of other factors suggests September won’t see slowed inflation.
The highest wage growth in over a decade was reported earlier in the month, with unemployment holding under 4 percent. The latest tariffs on Chinese imports mean increases in the price of goods.
The Trump Administration is prepping new sanctions on Iran in November, which is expected to tighten global oil supplies. There are analysts that predict the price of crude oil will hit $100 a barrel.
Retirees Could Expect $500 More For 2019
About 60 million Americans receive monthly checks from the Social Security Administration, of these people 43 million are retirees.
If September COLA increase brings the 2019 increase to 3 percent then Social Security recipients will see a $42.12 increase a month in checks, or an annual raise of $505.44.
Of course, anything helps, especially for seniors on a fixed income. Inflation can be detrimental to retirees’ finances, especially considering many American seniors only see income from a pension or retirement plan and Social Security benefits.
Seniors should not consider this adjustment “play money”, it would be a good idea to look at how much your budget has changed and plan. This will help you adjust and not accidentally spend beyond your means.
Get Ready for 2019
The one thing that always stays the same is that everything changes. It’s your responsibility as an American to educate yourself on these changes. If you have questions or concerns, contact Social Security.
The best way you can make changes, be actively involved with your local government, and remember to vote. If you want to be sure you have the best insurance coverage to help you pay for the healthcare expenses that come with age, contact a licensed insurance expert in your state.
