One of the biggest advantages of Social Security is that its payments get annual cost-of-living adjustments (COLAs). When inflation is high -- as seniors have seen during the past couple of years -- these COLAs cause monthly checks to rise the following January to help retiree purchasing power keep pace. 2022's COLA boosted benefits by 5.9% this year, and early estimates make it likely that the COLA that will take effect in early 2023 will be between 8% and 9%.
What's even better news is that, unlike in 2022, many Social Security recipients are more likely to see the full amount of their cost-of-living adjustment actually hit their bank accounts. That's because the impact of another key program for older Americans, Medicare, is likely to reverse the painful blow it dealt participants this time last year.
How Medicare took away a big part of 2022's Social Security COLA
The 5.9% COLA that took effect at the beginning of 2022 increased benefits for about 70 million Americans. For the typical Social Security retiree, the upward adjustment boosted average benefits by about $90 to $1,614 per month.
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However, even those who were eligible for those benefits didn't see their actual checks rise that much. That's because the Social Security Administration automatically withholds Medicare premiums for those recipients who have enrolled in Medicare.
In 2022, the increases in Medicare costs for retirees were extremely high. Medicare Part B premiums jumped 12.7% in 2022, from $148.50 in 2021 to $170.10 this year. That took away $21.60 per month out of that $90 average benefit boost.
According to the Centers for Medicare and Medicaid Services, much of the increase came from a single factor: the Biogen Alzheimer's drug Aduhelm. Early on, the program anticipated that it might end up covering the full cost for the drug for Medicare participants, which at the time was $56,000. That estimate got baked into the announced Part B premium for 2022.
Can Social Security recipients catch a break?
It wasn't too far into 2022, however, before Biogen blinked, cutting its announced price for Aduhelm nearly in half to $28,200. The Medicare program also limited coverage only for patients in authorized clinical trials, dramatically reducing the overall cost.
Facing criticism for what then seemed like a sizable overcharging of monthly premiums, the Secretary of Health and Human Services responded in May, letting Medicare participants know that it wouldn't be feasible to adjust premiums downward in the middle of the year due to legal and operational hurdles. However, the government said its 2023 Part B premium would end up getting adjusted downward to account for the lower expenses related to Aduhelm.
According to actuarial estimates at the time, the downward impact on Medicare premiums could amount to between $5 and $10 per month. That would potentially add another $5 to $10 on top of whatever the monthly impact of the COLA turns out to be in 2023.
Don't go spending that money just yet
Unfortunately, healthcare costs haven't been immune to the inflationary pressures hitting the broader economy. In fact, even as inflationary pressures waned in key areas like energy in August, the price of medical-care services rose 0.8% month over month.
That brought the 12-month increase to 5.6%. While that's below the overall rate of inflation, it nevertheless could serve to limit any downward adjustment of Medicare Part B premiums due to the Aduhelm situation.
Nevertheless, many Social Security recipients will be happy just to keep the entire amount of the COLA they receive in their monthly benefits. If it turns out a reduction in Medicare-related deductions adds to their checks, it would just be icing on the cake -- and still won't go too far in helping struggling seniors make ends meet.
