The chances of a tepid cost-of-living-adjustment for 2017 could soon have federal retirees cautiously watching how health insurance premiums will rise this fall.
But the kicker is for some retirees, no COLA will be a lot better than a small COLA.
The COLA determines how much select retirees—including many former federal employees—will be able to offset the rise in their Medicare premiums, and there’s a chance it will be very low this year.
COLA increases are determined, in part, by the Consumer Price Index for Urban Wage Earners and Clerical Workers, which determines the price of goods and services by urban wage earners and clerical workers. The COLA level increases if the third quarter CPI-W numbers are more than the previous year’s numbers. If the CPI-W remains at or below the previous year, the COLA benefit remains the same.
As a result, for beneficiaries who are receiving Social Security benefits, there’s a provision called “hold harmless” that allows them to cap their premium increase.
The hold harmless provision lets these beneficiaries deduct increased health care costs directly from Social Security, allowing the remaining premium to stay lower.
The remaining 30 percent of Medicare Part B beneficiaries not covered by hold harmless—an estimated 16 million retirees—have to pick up the slack, meaning their premiums could rise, a lot.
The National Active and Retired Federal Employees Association estimates that if the COLA rises between 0.1 and 0.2 percent, retirees who are held harmless could see premiums spike 42 percent or more.
So a non-hold-harmless beneficiary currently paying $104.90 for Medicare Part B could see their bills jump to $149 or higher with a low COLA. The higher the COLA goes, the lower the premium increases will be.
If the COLA question sounds familiar, it’s because it’s almost an identical situation to what federal employees faced last year, when a last-minute budget deal kept premiums from jumping more than 50 percent.
Because of the deal, if there’s no COLA, non-hold-harmless beneficiaries would pay $122.
July’s CPI-W numbers dropped 0.2 percent. Though the current annual rate is 234.789, above the year-to-date mark of 233.806, the next two months of CPI-W numbers will determine the 2017 COLA rate.
August’s CPI-W numbers will be announced by the Department of Labor on Sept. 16.
