The Social Security COLA and Medicare Part B Premium: Questions, Answers, and Issues

Social Security recipients are not expected to receive a cost-of-living adjustment (COLA) for the first time in 2010, with no or low COLAs projected through 2012. The absence of a COLA will result in higher Medicare Part B premiums for roughly a quarter of all Medicare beneficiaries, with a particularly steep increase in premiums expected between 2010 and 2011.

This issue brief, based on the most recent projections of the Medicare and Social Security Trustees, explains the relationship between the Social Security COLA and the Medicare Part B premium, and the implications for those who are covered by both programs. With Medicare Part B spending expected to continue to increase in the coming years, beneficiary premium contributions are also expected to rise to cover 25 percent of total Part B spending as required by law.

Not all Medicare beneficiaries will be affected. About three in four Medicare beneficiaries are protected by a "hold-harmless" provision in the law that ensures that their Medicare premiums do not increase more than any increase in Social Security premiums. Thus, the higher premiums would fall on the remaining one quarter of beneficiaries - with monthly premiums expected to rise from $96.40 this year to $104.20 in 2010 and $120.20 in 2011.

Because most in this group are low-income beneficiaries eligible for both Medicare and Medicaid benefits, Medicaid would pay the cost of the monthly Part B premium, increasing Medicaid costs for states. Higher-income beneficiaries who are required to pay an income-related surcharge in addition to the monthly Part B premium would also pay the higher rate, as would any new enrollees who did not receive Social Security payments in the previous year and/or were not covered under Part B.