Key Points
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The 2027 Social Security COLA is projected to be higher than average based on current inflation numbers.
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Medicare Part B premiums are automatically deducted from retirees’ Social Security benefits.
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The annual COLA is expected to outpace the Medicare hike for the first time since 2023.
For many of the 54 million-plus Social Security recipients, the annual cost-of-living adjustment (COLA) announcement is one of the most anticipated days of the year. This year, the official COLA will be released on Oct. 14, and although we won’t know the exact percentage until then, signs point to a higher-than-average boost.
However, a higher COLA doesn’t always translate to that much more money left over in your wallet. Because of the relationship between Social Security and Medicare, the 2027 boost could be partially offset.
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How the annual COLA is determined
The Social Security Administration (SSA) calculates the annual COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data.
It averages the numbers from the third quarter (July, August, and September), compares them to the previous year’s third-quarter average, and sets the COLA as the percentage increase, rounded up to the nearest tenth of a percentage point.
Although it rarely happens, if the CPI-W average is lower than the previous year, there’s no COLA, and benefits remain the same.
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Where Medicare comes into the picture
For the millions of retirees with Medicare Part B (medical insurance), monthly premiums are automatically deducted from their Social Security benefits. And like seemingly everything else, Medicare Part B premiums increase over time. This year, the premium increased by $17.90 to $202.90 per month. That 9.7% increase was much higher than the 2.8% COLA retirees received.
According to the latest Medicare Trustees Report, Medicare Part B premiums are estimated to increase by $6.60 to $209.50 per month.
How the COLA and Medicare hike could play out
To see how it could play out, let’s take The Senior Citizens League’s 2027 COLA estimate of 3.8%. If a current retiree’s current monthly benefit is $2,000, they would receive a $76 boost to $2,076 beginning next year. This is a sizable increase, but the net check would be only $69.40 higher after accounting for the Medicare Part B premium hike.
If a 3.8% COLA were to hold up, and Medicare premiums experience a 3.25% hike, it would be the first time since 2023 that the COLA outpaced the Medicare percentage increase since 2023, when the COLA was 8.7%.
Right now, it’s important to remember that these estimates are only estimates. We won’t know the official COLA until Oct. 14, and Medicare premiums won’t be announced until November. So, don’t take these figures at face value. However, the most important point is how the relationship between the two is likely to play out this upcoming year.
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