The Social Security Administration has announced the 2025 cost-of-living adjustment (COLA). In addition to impacting how much retirees receive in monthly Social Security benefits, the COLA impacts Medicare costs, meaning this is an important development for many seniors.
The 2025 COLA
Every year, the Social Security Administration applies a cost-of-living adjustment based on the Consumer Price Index (CPI). If inflation has been high, beneficiaries receive a large increase to account for higher costs. If inflation is low, the increase is small or even 0%.
The Social Security Administration has announced that the cost-of-living adjustment for 2025 will be 2.5%, based on the CPI between the third quarter of 2023 and the third quarter of 2024. Before the 2.5% COLA goes into effect, retired workers will receive an average monthly benefit of $1,927. Afterwards, the average monthly benefit will increase to $1,976. This means the average increase is $49 a month, although some people will receive more or less than this, depending on the benefits they receive.
Medicare Part B Premiums
CMS will announce the 2025 Medicare Part B premium in the fall. There is a good chance the premium will be higher than the 2024 premium, and it’s possible the increase will offset the Social Security cost-of-living adjustment.
Many seniors have their Medicare Part B premiums deducted from their Social Security benefits. If the Medicare Part B premium deductions increase but Social Security benefits increase, it’s possible that seniors will see no net increase. If the Medicare Part B premium increase is greater than the Social Security cost-of-living adjustment, seniors won’t necessarily see their benefits decrease. This is thanks to the hold harmless provision, which protects Social Security benefit payments from decreasing due to an increase in Medicare Part B premiums.
According to the Social Security Administration, seniors must meet two requirements to qualify for the hold harmless protection. They must:
- Receive Social Security benefits, or be entitled to them, for November and December of the current year.
- Have their Medicare Part B premiums for December and January deducted from their monthly benefits.
Other Social Security Changes for 2025
In addition to the cost-of-living adjustment, the Social Security Administration announced several other changes that may be relevant to Medicare beneficiaries:
- The maximum amount of earnings subject to the Social Security tax is increasing to $176,100 in 2025. For seniors who are still working or who have a significant income source, this higher threshold means they will have more take-home pay.
- The earnings limit for people who are younger than full retirement age is increasing to $23,400, meaning the Social Security Administration will deduct $1 from benefits for each $2 earned over $23,400. The earnings limit for people who reach their full retirement age in 2025 is increasing to $62,160, meaning the Social Security Administration will deduct $1 for every $3 earned over $62,160. (See the full retirement age chart to determine a person’s full retirement age based on when he or she was born.)
Helping Medicare Clients Navigate the 2025 COLA
Although inflation has cooled, many seniors are still struggling with higher costs. Research from the National Poll on Health Aging found that 47% of adults aged 50 and above have been greatly impacted by inflation and 53% are stressed about their personal finances.
It may be particularly difficult for seniors on a fixed budget to afford medical care, even with insurance. Research published in JAMA Network Open found that one in five seniors did not take prescriptions as prescribed due to the cost.
Some seniors may be happy with the 2.5% cost-of-living adjustment, but others may have been hoping for a larger increase, especially since it has been higher in recent years.
There are three things that may help seniors who are struggling financially:
- Consider all costs when comparing Medicare plans. In addition to the premiums, compare the copays and deductibles for anticipated care.
- Use your plan’s benefits. Preventive care is often available without any out-of-pocket costs.
- Apply for subsidies. Seniors who are struggling financially may qualify for a Medicare Savings Program and/or Extra Help. When in doubt, go ahead and apply!
Are you an agent who has questions about the 2025 cost-of-living adjustment and its impact on5 Cost of Living Adjustment Medicare costs? Western Asset Protection is here to help you. Contact us.