Stimulus Update for Senior Citizens, Retirees, and Those Who Hope to One Day Retire: Your Questions Answered

You sometimes have to cut through the noise to get to the true scoop.

For some, 2022 is a tough time to be a senior citizen in the United States. Discouraging stories and hopeful news are stirred into the same pot like some cockamamie stew that leaves a bad taste in everyone's mouth.

On the one hand, Sen. Ron Johnson argues that Social Security and Medicare should not be guaranteed but rather "negotiated" by Congress each year, leaving seniors with no sense of how much they can expect to receive the following year. On the other hand, a group of eight Democratic senators recently introduced legislation that would expand Social Security benefits by $2,400 a year.

And then there is Sen. Marco Rubio. Rubio proposes a paid parental leave program that would force parents to take money out of their future Social Security earnings. At the same time, news emerges that Democratic legislation would fully fund the Social Security system for the next 75 years without raising taxes on over 93% of households.

It's a lot to take, with contradictions and political posturing threatening the health and wellbeing of approximately 70 million Americans. Here, we separate the wheat from the chaff, offering what we know to be certain as of today.

Will there be a cost-of-living adjustment (COLA) next year?

Even with President Biden's Inflation Reduction Act's implementation, it will take time to get inflation under control. For those retirees and disabled Americans who rely on a fixed Social Security payment whose checks have not kept pace with inflation, an 8.7% COLA looks like it may be on the horizon for 2023. It would be the most significant increase since 1982.

To offer a sense of how such an increase would help, let's say someone currently receives a Social Security payment of $1,700 per month. An 8.7% increase would boost their monthly check to $1,848.

How is COLA determined, anyway?

As imperfect as the system may be, COLA is calculated by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the year in which the last COLA became effective to the average CPI-W for the third quarter of the current year.

That may sound like gibberish, so let's break it down this way. To determine COLA, the Social Security Administration compares how far a dollar stretches now compared to how far it stretched the last time a COLA became effective.

Because we know that inflation has eaten into our ability to stretch a dollar, common sense tells us that an upward COLA is the only way to catch up. And because the global pandemic ushered in some of the most dramatic inflation in recent history, it's not out of line to believe that a COLA of 8.7% is reasonable.

Will seniors really begin to save money on medications and vaccines?

Yes, but it's being phased in. For example, beginning in 2023, seniors will have access to free vaccines. In 2024, the most a Medicare recipient can be out of pocket for prescription drugs is $7,050. Starting in 2025, the most a senior on Medicare will have to spend on medication and vaccines is $2,000.

The Inflation Reduction Act also caps the amount seniors must spend on their insulin to $35 a month, a benefit that will help more than 3 million older Americans who depend on insulin to control diabetes. Considering that 1 in 4 people with diabetes admits to skipping insulin doses to save money, this price reduction could be a lifesaver.

President Biden explained earlier this week in a speech on the South Lawn, "They cannot pay a penny more than $2,000 a year, no matter how high their drug costs are."

The president highlighted the high cost of paying for medication that treats cancer and other serious diseases. The fact that some of these drugs can run up to $80,000 annually makes the maximum out-of-pocket cost of $2,000 life-changing for those who most need a break.

What about the overall price of drugs -- will those come down?

There's no denying the power of the pharmaceutical lobby in Washington D.C., as evidenced by the fact that not a single Republican voted in favor of the Inflation Reduction Act. Here's what managed to make its way to law:

• Starting in 2026, the government can negotiate with drug companies. At stake will be how much Medicare pays for a small group of drugs. In the first year, that list will include the 10 drugs Medicare currently spends the most money on. By 2029, the list will expand to 20 drugs, including some chemotherapy treatments.
• By 2029, Medicare recipients will be four years into the $2,000 annual out-of-pocket cap. Still, the Inflation Reduction Act aims to push out-of-pocket costs down more by negotiating drug prices.

Are there any more subsidies in store for low-income seniors who cannot afford the cost of medication?

Yes, beginning in 2024, the income limit to be eligible for a low-income subsidy rises from 135% of the federal poverty level to 150%. This small change is expected to give about 400,000 more Medicare beneficiaries subsidies.

Like dieting, long-term results are usually a result of incremental, sustainable changes. Despite what you hear coming out of Congress, positive change is possible. And some of those changes just might put more money into your bank account each month.