Healthcare costs are rising at several times the rate of general inflation, and it’s one of the major financial challenges that retirees face as they struggle to maintain their standard of living. Nowhere is this more clear than in the annual interplay between the Social Security cost-of-living adjustment (COLA) and Medicare Part B premiums.

Last month, Social Security announced a 1.3% COLA for 2021. That’s a very meager increase, but it looks worse following Medicare’s announcement last week that the monthly standard Part B premium will rise $3.90, to $148.50. If you’re enrolled in both Social Security and Medicare, the Part B premium is deducted from your benefit, so its interplay with the COLA is important.

The impact varies depending on your Social Security benefit amount. For people with very low benefits, Medicare eats up most or all of the COLA; in cases where the Part B hike would be larger than the COLA, the Social Security benefit is unchanged due to the “hold harmless” provision in federal law, which prohibits any decrease in benefits.

This year’s Part B premium was on track to rise much more than $3.90 per month, but a COVID relief measure passed by Congress recently capped the increase at 25% of whatever it would have been if Medicare simply followed the usual formula.

Joining me on the podcast this week to walk through the changes for 2021 is Mary Johnson. Mary is the Social Security and Medicare policy analyst for The Senior Citizens League; she’s been tracking the COLA for more than 25 years, and knows this topic inside and out.

Mary points out that we’re really in an unprecedented situation with regard to COLAs. Over the past decade, we’ve had zero COLAs three times, and one year where the increase was just three-tenths of a percentage points. Over a 12-year period, the COLA has averaged just 1.4%. “Twelve years is about one-third of the length of time a person spend in retirement,” she says, “So that is having a significant impact on the lifetime retirement benefits you receive from Social Security.”

Listen to the podcast here.