Higher Medicare Payments Will Eat Up More than 25% of Social Security’s COLA – Center for Retirement Research

Too much of our national and personal resources are used to pay for health care.

In November, the Centers for Medicare & Medicaid Services announced that the Part B premium will increase from $185 in 2025 to $202.90 a month in 2026. This 10 percent increase means the base premium will exceed $2,400 next year. In addition, Part B premiums as a share of annual Social Security benefits — defined as the benefit of retired workers with average pre-retirement earnings — will reach a record high of 9.4 percent (see Figure 1). The increase in 2026 will also eat up more than a quarter of the 2.8 percent cost-of-living adjustment.

In addition, the monthly premium of the beneficiary is related to the income. In 2026, the required amount increases from $202.90 for a couple with an annual income of $218,000 or less to $689.90 for a couple with $750,000 or more (see Table 1).

Increases in Part B premiums reflect increases in the cost of Medicare outpatient services, such as doctor visits, outpatient services, diagnostic tests, and prescription drugs. Payments are scheduled to cover 25 percent of the estimated total cost.

Of course, Part B premiums aren’t the only health care-related retirement expense. Under Part A, which covers inpatient hospital care and is largely financed through income taxes, beneficiaries will face a $1,736 deduction in 2026. Medicare Part B beneficiaries, in addition to the monthly payment mentioned above, will face a $283 deductible. Finally, for Part D, which covers drugs, beneficiaries face an additional payment, which varies by plan, and an income-related payment, which is deducted directly from their Social Security benefit. Because Medicare’s out-of-pocket costs can be very high, many enrollees purchase additional insurance, which may involve higher premiums.

And, finally, Medicare does not cover a range of health-related expenses, such as dental, vision, and hearing. Most importantly, except for some time in a skilled nursing facility after a hospital stay, Medicare does not cover long-term care costs.

Ignoring this major omission from Medicare, it may still be interesting to know how much Social Security income goes into other expenses after paying their medical expenses. Our partners did this kind of calculation using 2018 data Health and Retirement Study. Figure 2 presents a critical update of their findings to account for the fact that the Part B premium as a percentage of the average Social Security benefit will be 9.4 percent in 2026 compared to 8.3 percent in 2018. Although this ad correction will likely make the authors depressed, the results show that the portion of Social Security income left after the 7th exit is for Medicare beneficiaries. For those who are 25 years old^th in terms of Social Security income, the remaining share of non-medical expenses is only 52 percent, and for those 75 years old.^th percentile in distribution, the remaining share is 81 percent.

The bottom line here is nothing new – we use our national and personal resources heavily to pay for health care.