Higher Medicare premiums will consume more than 25% of Social Security COLA – Center for Retirement Research

Too many of our national and personal resources are used to pay for medical care.

In November, the Centers for Medicare and Medicaid Services announced that Part B premiums would rise from $185 in 2025 to $202.90 per month in 2026. That 10% increase means next year's base premium will be more than $2,400. In addition, Part B premiums as a share of annual Social Security benefits (defined as benefits for retired workers with average preretirement earnings) will reach an all-time high of 9.4 percent (see Figure 1). The 2026 increase will also consume more than a quarter of Social Security's 2.8 percent cost-of-living adjustment.

In addition, the beneficiary’s monthly premium is income-related. In 2026, the required amount increases from $202.90 for couples making $218,000 or less to $689.90 for couples making $750,000 or more (see Table 1).

The increase in Part B premiums reflects increases in Medicare's costs for outpatient services, such as doctor visits, hospital outpatient services, diagnostic tests and doctor-administered drugs. The premium will cover 25% of the total expected expenses.

Of course, Part B premiums aren't the only retiree expense related to health care. Under Part A, which covers hospital care and is largely funded by payroll taxes, beneficiaries would face a $1,736 deductible through 2026. Medicare Part B beneficiaries will face a $283 deductible in addition to the monthly premium mentioned above. Finally, in Part D (covered drugs), beneficiaries face another premium (which varies by plan), as well as an income-related premium that is deducted directly from their Social Security benefits. Because out-of-pocket costs for health insurance can be quite high, many enrollees purchase supplemental insurance, which can involve additional premiums.

Finally, Medicare does not cover a range of health-related expenses, such as dental, vision, and hearing. The bottom line is that Medicare does not cover long-term care costs, except for a period in a skilled nursing facility after a hospitalization.

Ignoring these huge omissions in Medicare coverage, it's still interesting to see how much Social Security income retirees have left for other expenses after paying their medical bills. My colleagues performed such calculations using 2018 data Health and Retirement Research. Figure 2 roughly updates their findings, considering that Part B premiums as a percentage of average Social Security benefits will be 9.4% in 2026, compared with 8.3% in 2018. While this temporary adjustment may make the authors cringe, the results show that for the median beneficiary, the proportion of Social Security income remaining after out-of-pocket medical expenses is 71 percent. for 25 year olds^th By Social Security income percentile, the share remaining for non-medical spending is only 52%, and for a 75-year-old^th The percentile in the distribution, the remaining share is 81%.

The bottom line here is not new—we use too many state and individual resources to pay for health care.