The Social Security Administration has announced the cost-of-living adjustment (COLA) for 2022 – and it’s a big one. When we ring in the new year, approximately 70 million Americans will be getting a 5.9% raise. This will be good news for your Medicare clients, so make sure they know what to expect.
How the SSA Determines the COLA
The annual COLA is tied to the Consumer Price Index. More specifically, the calculations for the 2022 increase are based on the Consumer Price Index between the third quarter of 2020 and the third quarter of 2021.
The Consumer Price Index is a measure of how much prices have increased, and the COLA is necessary because of inflation. Overtime, a dollar loses its value as everything from bread to cars gets more expensive. If your income didn’t increase to keep up with inflation, you would see your buying power – and therefore your standard of living – decrease year after year.
But inflation isn’t steady. Some years, prices increase a lot. Other years, they don’t. As a result, COLAs have been all over the place historically. In 2015, there was no increase. In 1980, the increase was a whopping 14.3%.
Recently, COLAs have been around 2%, give or take. The 2022 increase of 5.9% is the largest increase since 1982. That’s because prices have gone up recently – something you may notice yourself whenever you go shopping.
What the COLA Means for Seniors
Everyone likes getting a raise. The 5.9% COLA will come as a relief for many seniors living on a fixed income and dealing with rising costs.
In January 2022, the average monthly Social Security benefit before the 5.9% COLA would have been $1,565. The average monthly benefit after the COLA will be $1,657. Do the math, and we see that the average Social Security recipient will be getting an extra $92 each month.
Why Some People Aren’t Celebrating Just Yet
The 2022 COLA is big enough to make a real difference in a senior’s monthly budget, but there’s a catch. Many seniors have their Medicare Part B premiums automatically deducted from their Social Security checks. As a result, increases in the Medicare Part B premium can negate Social Security raises.
Thankfully, the Hold Harmless provision prevents Medicare beneficiaries from actually receiving less money if the Medicare increase is bigger than the Social Security increase. Nevertheless, some seniors end up seeing little – or even nothing – extra.
In 2021, standard Medicare Part B premiums increased from $144.60 to $148.50. That’s an increase of $3.90. It might not seem like much, but the COLA was only 1.3% that year, so seniors weren’t getting much more to cover the increased cost.
Seniors will be waiting to see how much the Medicare Part B premium will cost them in 2022. This information hasn’t been released yet, but we’ll be watching for the announcement.
How You Can Add Value
With more room in their budgets, some seniors may want to upgrade their Medicare benefits or add an ancillary coverage. Be sure they know all the products and options available to them.