For retirees, medical care is often a major expense. In fact, seniors could spend six figures just on healthcare alone during retirement, even when they're covered by Medicare.
Taking care of your health gets more expensive as you age. Even Medicare premiums tend to go up from one year to the next. And since most seniors pay these premiums out of their Social Security checks, rising Medicare costs can make annual cost-of-living adjustments (COLAs) disappear in some years or come in very small in others.
That was a very real risk for 2021, especially as the COLA (or Social Security raise) for next year is just 1.3%, which is the smallest increase since 2017. The good news, however, is most seniors aren't going to see all their extra money eaten up by rising Medicare premiums next year. In fact, retirees dodged a big bullet when it comes to premium prices. Here's what happened.
Retirees got a reprieve
For months, seniors were faced with dire warnings that Medicare premiums would go up dramatically as coronavirus-related costs mounted. In fact, in September, the Congressional Budget Office was already estimating Medicare outlays would be around 12% higher in 2020, which was twice what the Medicare Trustees had predicted -- and that was before the second wave of COVID-19.
If premiums had risen as expected, many seniors would've lost the entirety of their Social Security raise. In fact, since the COLA is so small this year due to COVID-19 holding down consumer demand, there was actually a good chance rising premiums would exceed the benefits increase most seniors were in line for.
When Medicare premiums go up more than Social Security checks, retirees don't lose money since "hold harmless" provisions prevent that from happening. However, some high-earning Medicare beneficiaries aren't protected by them and would have faced bigger increases. And while hold harmless provisions prevent checks from getting smaller, retirees eventually have to catch up.
In simple terms, if COLAs would result in a retiree getting $20 more in their check but Medicare premiums went up $30, that senior would've got no additional money but their check wouldn't have decreased. The next time the senior was in line for a raise, they'd have had to make up for the $10 they weren't paying but should have been. This means a big jump up in premiums could've potentially affected retirees' raises for at least one year, and possibly longer.
The good news, however, is that lawmakers capped the Medicare premium increase for 2021 to 25% of the increase that normally would've occurred. As a result, the standard premium for Medicare Part B most retirees pay is going up just $3.90 in 2020 from $144.60 to $148.50 per month. Centers for Medicare and Medicaid services indicated that the legislation the president signed "significantly dampens the 2021 Medicare Part B premium increase that would have occurred given the estimated growth in Medicare spending next year."
This is great news for seniors who will now get at least some extra money in their Social Security checks in 2021.