Will medical costs affect COLA 2023 and how much will Medicare premiums drop?
The annual increase is a result of the widespread inflation experienced in the past year, but what role do medical expenses play in the calculation?
The cost-of-living adjustment (COLA) reflects the year-on-year price changes recorded in the United States. To ensure that benefits are raised in line with inflation the Social Security Administration must introduce a COLA increase every year, or recipients will be poorer in real terms.
The COLA figure is based on the Consumer Price Index (CPI), which the Bureau of Labor Statistics defines as “a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services.”
The CPI is comprised of eight groups of spending, one of which is medical care. If the cost of healthcare across the country increases significantly over the year, then the following year’s COLA boost will reflect that change.
The medical care CPI index is divided into two main categories: medical care services and medical care commodities.
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How will the reduced Medicare premiums affect the 2023 COLA?
For the first time in more than a decade some Medicare recipients will see a decrease in their premiums. Those in receipt of Part B coverage will have their standard monthly premium lowered by $5.20 in 2023, to $164.90.
This comes after a 14.5% increase in 2022 which saw premiums raised from $148.50 to $170.10, the highest figure on record for Medicare Part B premiums.
But although medical costs are included in the CPI figure which ultimately dictates the COLA increase, the 2023 saving is so small as to be insignificant when combined with the national rate of inflation. Areas like energy, food and gasoline have risen so sharply that the effect of a minor fall in the cost of Medicare Part B premiums will not be felt in the COLA figure.
Part B coverage focuses on two types of service: the medically necessary and preventative treatments. This covers everything from ambulance services and medical equipment to mental health support and a selection of outpatient prescription drugs.
Medicare Part A premiums will increase slightly in 2023, with monthly costs fixed between $278 and $506, depending on how long you or your spouse worked for and the amount of Medicare taxes paid.
The costs for Part C and Part D coverage will vary greatly between individuals because they are reflective of local state funding efforts and the price of drugs that you may be claiming through the insurance.