2021 Social Security Cost-of-Living Adjustment (COLA) and Medicare Costs

Here’s some news from the Social Security Administration (SSA): Monthly benefit payments will increase slightly for Social Security beneficiaries in 2021.

The 2021 cost-of-living adjustment (COLA) is 1.3%, which means beneficiaries collecting the average Social Security retirement benefits payment will see their payments increase $20 per month, from $1,523 per month to $1,543 per month.¹

The 2021 COLA increase is slightly lower than the COLA increase for previous years.

The 2020 Social Security COLA could affect your monthly budget.

What Is the COLA for 2021?

The 2021 COLA of 1.3% will increase benefits payments for close to 72 million Americans.¹

Each year, the Social Security Administration reviews changes in the cost of living that could affect beneficiaries. The amount paid out to Social Security beneficiaries is then updated to reflect these changes.

As the cost of living increases, so do Social Security benefits. 

Social Security beneficiaries include retirees, Americans with qualified disability status and young survivors of deceased Social Security beneficiaries.

How Does the 2021 COLA Compare to 2020?

The 2021 COLA of 1.3% is a smaller increase than the 2020 COLA of 1.6% and the 2019 COLA of 2.8%. 

Over the past decade, the COLA has averaged 1.65% per year, so the 1.3% increase for 2021 is below the recent average and is the lowest since 2017.

There were only three instances since the COLA was introduced that the COLA wasn’t increased (in 2009, 2010 and 2015).²

What Does the 2021 COLA Mean for Medicare Beneficiaries?

While the 2021 COLA is set to increase, so too is the 2021 Medicare Part B premium.

The 2021 Medicare Part B premium rose from $144.30 per month (in 2020) to $148.50 per month (in 2021).

The Centers for Medicare and Medicaid Services (CMS) will officially announce the 2022 Part B premium in December of 2021.

The average Social Security beneficiary who is enrolled in Medicare Part B will have their $20 monthly increase in Social Security benefits cut into by the projected $4.50 per month increase in the standard Part B premium. 

What Is the Hold Harmless Provision?

Some beneficiaries collect smaller Social Security benefit payments and pay less than the standard Medicare Part B premium.

In some cases (if they have their Part B premium deducted from their monthly Social Security benefit payments), the 2021 COLA may not be enough to cover their increased Part B premiums. This essentially reduces their Social Security benefits from the year before.

The hold harmless rule protects people in this situation by keeping the increase in their Medicare Part B premium equal to the increase in their Social Security benefits.

The hold harmless provision doesn’t apply to you if:

• You’re new to Medicare in 2021

• You’re enrolled in a Medicare Savings Program (MSP)

• You’re required to pay a Medicare IRMAA in 2021

What Is the 2021 IRMAA for Medicare Part B Premiums?

Medicare beneficiaries with a certain level of income are required to pay higher Medicare Part B premiums. This increased amount is known as the Medicare IRMAA, or Income-Related Monthly Adjusted Amount. 

• The 2021 IRMAA applies a different Part B premium to beneficiaries in specific income brackets based on their reported income from 2019.

• The 2021 Medicare IRMAA amount will be indexed according to inflation.

• The change in how 2021 IRMAA costs are calculated means the income thresholds that are the basis for IRMAA charges will increase slightly. This will likely decrease the number of beneficiaries who are affected by the Part B IRMAA, and it will slow how quickly a beneficiary might progress into a higher income bracket.

The 2021 IRMAA costs are based on reported income from 2019. The chart below illustrates how these charges affect Part B beneficiaries and their 2021 Part B premiums.

Medicare Supplement Plans Can Help Pay for Your Out-of-Pocket Medicare Costs

If you are enrolled in Medicare Part A (hospital insurance) and Part B (medical insurance), you will typically face out-of-pocket costs for your covered services.

Depending on what health care you need in 2021, these Medicare costs –  such as deductibles, copays, coinsurance and more – can add up quickly.

A Medicare Supplement Insurance (Medigap) plan can help pay for some of these out-of-pocket Medicare costs, helping fill some of the “gaps” left by Original Medicare coverage.

For example, Medigap Plan G can help pay for costs including (but not limited to):

• Your Part A and Part B coinsurance costs

• Your Part A deductible

• The costs for the first 3 pints of blood you may need for a transfusion

• 80% of the costs for covered emergency medical care when you travel abroad

A licensed insurance agent can help you compare the Medigap plans that may be available where you live. Call today to speak with a licensed agent and find a Medigap plan that fits your needs.

¹ Social Security Administration (SSA). (Oct. 13, 2020). Social Security Announces 1.3 Percent Benefit Increase for 2021 [press release]. https://www.ssa.gov/news/press/releases/2020/#10-2020-1. 

² Social Security Administration. Cost-Of-Living Adjustments. www.ssa.gov/oact/cola/colaseries.html.

Christian Worstell is a health care and policy writer for MedicareSupplement.com. He has written hundreds of articles helping people better understand their Medicare coverage options.