Rising healthcare costs are a major problem for seniors on a fixed income, and so any time Medicare premiums go up, it's stressful for retirees. Unfortunately, the Centers for Medicare and Medicaid Services just announced that Medicare Part B premiums will be rising in 2021. The standard monthly Part B premium is currently $144.60, but come 2021, it will increase to $148.50. That $3.90 bump represents a 2.7% increase, which is more than double the most recent Social Security cost-of-living adjustment (COLA ).
Of course, it's not just Part B premiums that are rising. The annual deductible for Part B is also going up from $198 in 2020 to $203 in 2021. And the Part A deductible per hospital benefit period is increasing, too, from $1,408 to $1,484 -- a $76 jump.
Now on the one hand, a $3.90 increase in monthly Part B premiums may not seem so bad. In fact, last year, Part B premiums rose by $9.10 a month, so this bump is clearly not as substantial. But let's not forget that seniors were just hit with news of a stingy Social Security COLA going into 2021, and that many have already struggled financially because of the coronavirus pandemic. At this point, any Part B increase at all could result in a world of financial pain.
Medicare keeps eating away at Social Security raises
The upcoming 1.3% Social Security COLA is lower than 2020's 1.6% COLA, and for the average beneficiary, it will result in less than $20 extra per month in income. With Medicare Part B rising by $3.90 a month, we now need to back out that amount, which means the typical senior gets more like a $16 monthly raise. All told, that's less than $200 extra in the course of the year, and that's just when we subtract the cost of Part B premium increases. When we factor in a higher Part A and Part B deductible, it's conceivable that some seniors will only see their income increase by about $100 in 2021.
Of course, all of this highlights the danger of relying solely or even heavily on Social Security. Seniors with income outside of those benefits can more easily absorb Medicare hikes, but those who are limited to Social Security are apt to struggle every time healthcare costs increase. In fact, it's estimated that seniors on Social Security have lost an alarming 30% of their buying power over the past 20 years, and much of that boils down to the fact that healthcare inflation has well outpaced Social Security COLAs. If Medicare costs continue to rise, Social Security beneficiaries will continue to be at a major financial disadvantage unless lawmakers step in and change the way COLAs are calculated.
Currently, COLAs are based on third quarter price fluctuations in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Some seniors advocates are pushing lawmakers to change the rules so that COLAs are based on a senior-specific index -- the Consumer Price Index for the Elderly (CPI-E), which would more accurately incorporate healthcare inflation into Social Security raises.
Meanwhile, Medicare enrollees will have to prepare to pay more in 2021 -- and that's just for the increases mentioned above. Many seniors may also be grappling with Part D drug plan increases, thereby contributing to an already dangerous financial crunch.