Social Security recipients may actually keep their 2023 raise | Economic news

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One of the biggest advantages of Social Security is that its payments benefit from annual cost of living adjustments (COLA). When inflation is high—as seniors have seen over the past two years—these COLAs lead to increased monthly checks the following January to help retirees’ purchasing power keep pace. The 2022 COLA has increased benefits by 5.9% this year, and early estimates indicate it is likely that the COLA which will come into force at the beginning of 2023 will be between 8% and 9%.

What’s even better is that, unlike 2022, many Social Security recipients are more likely to have the full amount of their cost-of-living adjustment actually hit their bank accounts. That’s because the impact of another key program for older Americans, Medicare, is likely to reverse the painful blow it dealt participants this time last year.

How Medicare removed much of the 2022 Social Security COLA

The 5.9% COLA that took effect in early 2022 increased benefits for about 70 million Americans. For the typical Social Security retiree, the upward adjustment increased average benefits by about $90 to $1,614 per month.

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However, even those who qualified for these benefits did not see their actual checks increase as much. This is because the Social Security Administration automatically withholds Medicare premiums for beneficiaries who have enrolled in Medicare.

In 2022, Medicare cost increases for retirees were extremely high. Medicare Part B premiums jumped 12.7% in 2022, from $148.50 in 2021 to $170.10 this year. That took $21.60 a month off that average benefit increase of $90.

According to the Centers for Medicare and Medicaid Services, much of the increase comes from a single factor: biogenic Alzheimer’s disease drug Aduhelm. From the start, the program projected that it might end up covering the full cost of the drug for Medicare participants, which at the time was $56,000. This estimate has been incorporated into the Part B premium announced for 2022.

Can Social Security recipients take a break?

It wasn’t too far off in 2022, however, before Biogen blinked, nearly halving its advertised price for Aduhelm to $28,200. The Medicare program also limited coverage to only patients participating in authorized clinical trials, significantly reducing the overall cost.

In the face of criticism from what then seemed to be a significant monthly premium surcharge, the Secretary of Health and Human Services responded in May, advising Medicare participants that it would not be possible to adjust premiums downward mid-year due to legal and operational hurdles. However, the government has said its 2023 Part B bonus will eventually be adjusted downwards to take into account lower spending on Aduhelm.

Actuarial estimates at the time put the downward impact on Medicare premiums at between $5 and $10 per month. This could potentially to add $5-10 more monthly COLA impact in 2023.

Don’t spend that money just yet

Unfortunately, health care costs have not been immune to the inflationary pressures that are hitting the entire economy. In fact, even as inflationary pressures eased in key sectors like energy in August, the price of medical care services rose 0.8% month over month.

This brought the 12-month increase to 5.6%. While this is lower than the overall inflation rate, it could still serve to limit any downward adjustment to Medicare Part B premiums due to Aduhelm’s situation.

Still, many Social Security recipients will be happy to keep the full COLA amount they receive in their monthly benefits. If it turns out that a reduction in Medicare-related deductions adds to their checks, that would just be the icing on the cake – and still won’t go too far to help the elderly in difficulty making ends meet.

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Dan Caplinger has no position in the stocks mentioned. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.

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