11.4% COLA Increase & Medicare Premiums Lowered in 2023?! (SSA, SSI, SSDI)

Leading up to our official cost of living adjustment announcement in October, different groups prepare the retirement community by analyzing CPI inflation trends and forecasting the next COLA. Two recent forecasts peg the 2023 COLA at 10.5% and 10.8%: The Senior Citizens League, an advocacy group, predicted a 10.5% COLA in July. The prediction marked an increase from the organization's June COLA estimate of 8.6%. The nonpartisan Committee for a Responsible Federal Budget said the 2023 COLA could be 10.8% if inflation remains high for the rest of the year. Inflation in July, August, and September 2022 will determine the COLA that Social Security and SSI beneficiaries will receive next year. The COLA takes effect in December, and the updated benefits are paid out starting in January 2023.

If the COLA does land at 10% or more, it will be the third-highest increase since COLAs began in 1975. The highest and second-highest COLAs were 14.3% in 1980 and 11.2% in 1981. The COLA computation relies on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, also known as the CPI-W. Like other measures for inflation, the CPI-W is calculated monthly by the Bureau of Labor Statistics. Each year, the SSA averages the CPI-W value for the third-quarter months of July, August, and September. The average is then compared to the same value for the prior year. If the current year's average is higher, then the percentage increase is the COLA. For example, the third-quarter CPI-W for 2021 was 268.421.In the prior year, the average was 253.412. The percentage difference here was 5.9%, and that became the 2022 COLA. Social Security and SSI recipients saw their benefits increase by that percentage in January 2022. Although the 2023 Social Security COLA could be historically high, Medicare participants may see lower premiums next year. That would be a welcome development for millions of seniors who absorbed a 14.5% increase in Medicare Part B premiums at the start of 2022. The expected 2023 premium reduction would correct last year's huge increase.

The 2022 premium was based partly on estimated costs for Aduhelm, a new Alzheimer's drug developed by Biogen. Medicare's actual expenditures on the drug have been much lower than initially projected. The Centers for Medicare & Medicaid Services has recommended passing those cost savings on to seniors via a premium decrease in 2023. In a more typical year, Social Security's COLA represents the high end of Medicare premium increases. By law, Medicare Part B premiums cannot increase more than the COLA in the same year. A brand new reconciliation bill announced in Congress contains a provision that would enable the Medicare agency to negotiate the prices for certain costly medications purchased at the pharmacy (for Medicare Part D) or administered by physicians (for Medicare Part B).The Medicare Modernization Act of 2003, which established the Part D program, formerly prohibited the agency from negotiating drug prices. This provision applies to medications and biologicals that have been on the market for several years without competition from generics or similar drugs. With this new bill, price negotiation would begin in 2026, with the number of negotiated drugs limited to 10 to 15 drugs each year, then 20 in 2029 and beyond. The impact of the provision on Medicare beneficiaries’ out-of-pocket costs will depend on which drugs are chosen for price negotiation and how much their price drops.

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