Putting COLAs in context

DANVERS, MA, October 18, 2022 – The 8.7% increase in Social Security COLAs announced last week, combined with the $5.20 decline in monthly Medicare Part B premiums for 2023, was welcomed by retirees. HealthView Services’ new Insights Brief – Medicare and Social Security COLAs: Putting the 2023 Numbers in Context – highlights the impact of these changes on retirement healthcare costs.

The report underscores that the increase in Social Security COLAs – the largest in the last 40 years – is not a windfall, but a reflection of the increased cost of living. And the decline in Part B premiums – only the third time this has happened – follows an outsized 14.5% increase in 2022.

The premium change reflects lower expected costs related to the Alzheimer drug, Aduhelm.

With Medicare Part B premiums only one component of future healthcare costs, the paper notes that premiums for Medicare Part D prescription drug coverage, supplemental insurance (Medigap), dental insurance, and out-of-pocket spending on deductibles and co-pays are all expected to increase in 2023. It reveals that the 2023 Part B premium savings of $62.40 amount to less than 1% of total projected healthcare costs for a healthy 65-year-old individual retiring next year.

“One year’s data does not tell the complete story. It is important to look at Medicare and the Social Security Administration’s long-term projections for premium increases and COLAs for retirement planning purposes,” said Ron Mastrogiovanni, CEO of HealthView Services. “Although these numbers are subject to change, the takeaway is clear and consistent with past trend lines – Medicare premiums will continue to rise at a faster pace than COLAs – and, over time, a greater portion of Social Security benefits or other sources of retirement income will be needed to address healthcare needs.”

HealthView Services’ Retirement Healthcare Cost Index draws on Medicare and Social Security
Administration data, actual cost data from 530 million healthcare claims, and inflation rates for each component of healthcare costs, to project total retirement healthcare expenses as a portion of expected Social Security benefits over time.

Using updated Medicare Part B premiums and Social Security COLAs for 2023, the Index shows that at the start of retirement, actuarial average healthcare costs including all premiums and out-of-pocket expenses will account for around 45% of Social Security income before taxes for a healthy 65-year-old couple retiring and starting Medicare and Social Security next year.

Assuming they both live to 89, at the end of retirement healthcare expenses will amount to close to their entire Social Security check. This excludes long-term care at the end of life and the potential impact of taxes or Medicare surcharges.

“Retirement planning is not about one year of expenses or returns, but ensuring needs can be met through retirement,” adds Mastrogiovanni. “The 2023 numbers from Social Security and Medicare provide an opportunity for clients and advisors to discuss retirement plans, the role of Social Security, Medicare premiums, and other healthcare costs that need to planned for in retirement."

Download the Insights Brief here.