Medicare Eats Up Most of the 2022 Social Security Raise

Last update December 1, 2021

Bob Williams December 1, 2021 SNB & CHF

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Summary:
There was dancing in the streets when Social Security announced that 2022 checks will go up by 5.9%, the biggest Cost of Living Adjustment (COLA) in 40 years. But now, the streets are empty and the cheering is gone. Most of that Social Security COLA will be eaten up by increases in Medicare. Medicare Part B, which covers doctor services and outpatient care, will go up by 14.5% which is the largest Medicare increase ever. This year the monthly premium for Medicare Part B is 8.50. Next year that jumps to 0.10, more than double what Medicare Trustees estimated back in the summer. In addition, the Part B deductible is going up, from 3 this year to 3 in 2022, an increase of 14.8%. But that’s not all. The Medicare Part A deductible goes up , from 84 to

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There was dancing in the streets when Social Security announced that 2022 checks will go up by 5.9%, the biggest Cost of Living Adjustment (COLA) in 40 years. But now, the streets are empty and the cheering is gone. Most of that Social Security COLA will be eaten up by increases in Medicare.

Medicare Part B, which covers doctor services and outpatient care, will go up by 14.5% which is the largest Medicare increase ever. This year the monthly premium for Medicare Part B is $148.50. Next year that jumps to $170.10, more than double what Medicare Trustees estimated back in the summer. In addition, the Part B deductible is going up, from $203 this year to $233 in 2022, an increase of 14.8%. But that’s not all. The Medicare Part A deductible goes up $72, from $1484 to $1556. Part A covers hospital costs.

The Centers for Medicare Services says there are three reasons why premiums are going up so much.

Rising prices to deliver health care to Medicare enrollees and increased use of the health care system. Some of the higher health care spending is being attributed to COVID-19 care.
In 2021, because of the pandemic, Congress took action to significantly lower the expected Part B premium increase for that year. In 2021, the Part B premium increased only $3 a month. Congress directed CMS to pay back that reduced premium over time and that payback is starting in 2022.
CMS is setting aside money in its reserves in the event it decides that Medicare will cover, Aduhelm, a new Alzheimer’s drug that was approved by the U.S. Food and Drug Administration (FDA) earlier this year. CMS is still doing an analysis to determine whether Medicare will cover Aduhelm — and any similar drugs to treat Alzheimer’s. CMS officials said the fact that they are setting aside money to cover the use of that drug “in no way implies what the coverage determination will be” but that they have to plan for the possibility that Medicare will cover this high-cost drug, whose price has been estimated at $56,000 a year.

And we can’t forget about the extra taxes that will have to be on these Social Security checks.

Individuals with less than $25,000 in combined income — or married couples with less than $32,000 — don’t have to pay taxes on their benefits. Combined income is calculated by adding adjusted gross income plus non-taxable interest income plus one-half of Social Security benefits. Social Security beneficiaries who are above those combined income thresholds pay taxes on up to 85% of their benefits.

And here’s where the rub comes in. According to the Center for Retirement Research at Boston College, income tax thresholds are not adjusted for wage or price growth like Social Security is. That means, as time goes on, more beneficiaries are taxed on their benefits.

In 1983, 8% of eligible families paid taxes on their Social Security. Today, approximately 56% pay taxes on their benefit. That’s expected to increase to 58% by 2030. So, unless the government makes a change in tax rules, this cycle will continue: higher inflation will cause higher Social Security Cost-of-Living Adjustments (COLA) creating larger Social Security checks, forcing more Social Security recipients to pay income taxes on their benefit.

To paraphrase a line from the Ernest Lawrence Thayer poem, Casey at the Bat, just because you get a bigger COLA on your Social Security check doesn’t mean there will be joy in Mudville.