Breaking It Down: What the Lack of a Cost of Living Adjustment (COLA) Means for You

By Ronald A. Fatoullah, Esq. and Eva Schwechter, J.D.

{2:42 minutes to read} It was announced in October that Social Security beneficiaries will not receive a Cost of Living Adjustment for 2016. This is only the third time in the past 40 years that the government has not increased Social Security benefits. It is important for the average Social Security and Medicare beneficiary to understand how this news affects him or her, both in terms of income and health care premiums.

The Cost of Living Adjustment, or COLA, is an adjustment made to Social Security and Supplemental Security Income benefits to keep up with the effects of inflation. For example, if you received $10,000 last year in Social Security benefits, and the COLA was calculated to be 3%, then your benefits this year would increase to $10,300. Inflation in a given year is currently calculated by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In short, when there is no inflation, then there is no adjustment to Social Security benefits. The most straightforward impact of having no COLA is that Social Security benefits for 2016 will remain the same as the benefits in 2015.

The loss of the Social Security COLA also means some Medicare beneficiaries will see their Part B premiums increase next year. Seventy percent of Social Security beneficiaries have their Medicare premium automatically deducted from their Social Security benefits. Under the law, these beneficiaries are "held harmless" from Medicare premium increases if there is no COLA. This will result in a disproportionate increase in premiums for the other 30% of Medicare beneficiaries-those who are not "held harmless." This group of individuals includes those who are receiving Medicare for the first time, those not yet receiving Social Security benefits, those with higher incomes, and those who are in receipt of Medicaid.

The recently passed Budget Reduction Act of 2015 lessens the burden on the 30% of Medicare recipients who are not "held harmless." The Budget Reduction Act will raise premiums by approximately 15% instead of the 50% initially indicated. This puts the base minimum premium for those in the "not held harmless" category of Medicare recipients at $120 a month. Those in the "held harmless" category will not see a premium increase. With respect to deductibles, all Medicare beneficiaries will see their Part B deductible increase to approximately $167.

The practical ramifications are that there will still be cost increases for Medicare beneficiaries in 2016, but these increases will be much smaller than they would have been without the new Budget Reduction Act.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter recently graduated from Hofstra University School of Law, where she was a member of the Hofstra Law Review. She is awaiting admission to the New York bar. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.