When 2022's record-breaking COLA was announced, it came hard on the heels of one of the largest Part B increases in history, meaning most Social Security beneficiaries saw little to no increase in their actual monthly check. For 2023, however, the cost of living adjustment will go even farther than last year's - 8.7%. At the same time, the Centers for Medicare & Medicaid Services (CMS) announced that the Part B premium would actually be lower in 2023 - $164.90. This is great news for Medicare beneficiaries.

Here is more information about what COLA is, when it takes effect, how to know if you qualify, and protections in place for your benefits.

What is COLA?

COLA, first enacted in 1973, is implemented by the Social Security Administration (SSA) and helps ensure the purchasing power of Social Security and SSI benefits aren’t decreased due to inflation.

The Social Security Act specifies a formula for determining the COLA each year, but it’s based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). These are calculated monthly by the Bureau of Labor Statistics. COLA is then based on the percentage increase in the CPI-W from the third quarter of the last year a COLA was determined through the third quarter of the current year.

If the CPI-Q increases more than 0.1% year over year, the SSA will increase benefits by the same amount. On the other hand, if there is no increase, there is no COLA.

Other adjustments may also be part of COLA including:

• Maximum amount of earnings subject to the Social Security tax (taxable amount)
• Earnings limit for workers younger than “full” retirement age
• Earnings for people reaching “full” retirement age
• Social Security tax rates

Over the past 20 years, the COLA has ranged from 0% to 5.9%, as shown in this “automatic COLA adjustments received since 1975” chart:

The 2022 changes for 2023 benefits were announced in October 2022.

When does the cost-of-living adjustment take effect?

COLA will take effect:

• December 30, 2022, for SSI benefits
• January 2023 for Social Security beneficiaries

Any other adjustments to Social Security will also take effect in January 2023.

For Social Security beneficiaries receiving Medicare, the SSA will not be able to compute your new benefit amount until after the Medicare premium amounts for 2023 are announced. Final 2023 benefit amounts will then be communicated in December through mailed COLA notices and the my Social Security message board.

How to know if I’m impacted by the cost-of-living adjustment

COLA notices are available to most beneficiaries online in December each year. Log in to your my Social Security account and check in the Message Center. Or, you’ll receive your notification in the amil if that’s what is set as your preferred way to receive courtesy notifications.

Remember, no government agency, including the SSA and Medicare, will ask for your personal information or request fees for services in the form of wire transfers or gift cards. If you receive a call from someone claiming to be with one of these agencies and asking for your information, hang up and report the activity.

Hold harmless provision

There are protections in place by the SSA and Centers for Medicare & Medicaid Services (CMS) to ensure you won’t have a reduction in your Social Security benefits due to Medicare Part B premium increases. This is called the “hold harmless provision.”

For example, the Part B base premium in 2023 is $164.90, which is $5.20 lower than in 2022. Most people with Medicare will pay that new premium because the increase in Social Security benefits covers the premium increase. However, some beneficiaries will see little or no increase in their Part B premium, so Social Security benefit checks will stay the same, due to the COLA not being large enough to cover the increase.

In other words, you are only responsible for the increase in Medicare premiums up to your COLA.

Keep in mind that in order to qualify for the hold harmless provision, you must receive Social Security benefits (or be entitled to benefits) for November and December of the current year, and have your Medicare Part B premiums for December and January deducted from your monthly benefits.

This provision does not apply to you if you enroll in Part B for the first time in 2023, you pay an income-related monthly adjustment amount premium, and/or you are dually eligible for Medicaid and have your premium paid by a state Medicaid agency.