Social Security COLA vs. Rising Insurance Premiums

COLA stands for Cost-of-Living Adjustment. It is an automatic annual increase built into Social Security by law — Congress created it in 1972 and automatic COLAs began in 1975. The purpose is straightforward: to make sure your benefit check does not lose buying power as prices rise.

The calculation is done by the Social Security Administration using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure published by the Bureau of Labor Statistics. SSA takes the average CPI-W from July, August, and September of the current year and compares it to the same three months the year before. If prices rose, benefits rise by the same percentage. If prices somehow fell, the COLA would be zero — benefits never go down due to COLA.

For 2026, that comparison showed prices rose 2.8%. The SSA announced this on October 24, 2025. The 2026 COLA is slightly higher than the 2025 COLA (which was 2.5%), and close to the 10-year average of about 3.1%. In practical dollars, the average retired worker’s monthly check increased from approximately $1,976 to approximately $2,032 — a gain of roughly $56 per month starting in January 2026.

It is a fair observation, and there is a specific policy reason behind it. The COLA is based on the CPI-W, which tracks spending patterns of urban workers — people still employed. Retired seniors spend their money very differently: they spend more on health care, prescription drugs, and housing, and less on transportation, education, and clothing.

The Bureau of Labor Statistics actually produces a separate experimental index called the CPI-E (the “E” stands for Elderly), which is weighted to reflect how people 62 and older actually spend their money. Because health care and housing take up a larger share of older Americans’ budgets, the CPI-E has historically risen slightly faster than the CPI-W.

The Bipartisan Policy Center and the SSA’s Chief Actuary have both studied this. Their estimate: switching to CPI-E would increase annual COLAs by approximately 0.2 percentage points per year. That is a modest improvement, but it would mean meaningful extra dollars over years of retirement. However, the CPI-E is still classified as experimental by the BLS due to methodology concerns, and Congress has not changed the law to use it. Any such change would require legislation.

In short: the 2.8% COLA is real and accurate for what it measures. But what it measures may not fully match what seniors spend on. That gap is especially pronounced in years like this one, when health care costs jump far more than overall inflation.

The timing is slightly different for the two groups, and this confuses people every year:

• Social Security retirement and disability (SSDI) recipients: The 2.8% COLA increase was applied beginning with the January 2026 payment. Since Social Security pays one month in arrears (January’s benefit pays for December), most recipients saw their first higher check arrive in late January or early February 2026, depending on their birthdate payment schedule.
• SSI (Supplemental Security Income) recipients: SSI payments are paid at the start of each month for that month. Because January 1 is a federal holiday, SSI recipients received their first COLA-adjusted payment on December 31, 2025 — which is technically the January 2026 SSI payment, paid early.

If you receive both Social Security and SSI, you saw the SSI portion on December 31, 2025, and the Social Security portion starting with your January 2026 payment. The COLA notice was mailed in December 2025 — or viewable online earlier through your personal my Social Security account at ssa.gov/myaccount.

The Centers for Medicare & Medicaid Services (CMS) announced on November 14, 2025 that the standard Medicare Part B premium for 2026 is $202.90 per month — an increase of $17.90 from $185.00 in 2025. This is the first time the Part B monthly premium has exceeded $200 in the program’s history.

Part B covers physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and preventive care. Almost all Medicare beneficiaries pay this premium — it is automatically deducted from your Social Security check each month if you receive Social Security.

Other Medicare cost changes for 2026:

• Part B annual deductible: $283 (up $26 from $257 in 2025) — you pay this before Part B coverage begins each year
• Part A inpatient hospital deductible: $1,736 per benefit period (up $60 from $1,676) — applies if you are admitted to the hospital
• Part D maximum deductible: $615 (up from $590) — individual plans may be lower; some have no deductible

CMS stated the Part B increase is due to projected healthcare price increases and greater use of services — consistent with long-term historical trends. Without action to address unusual spending on skin substitute products, CMS noted the premium would have been approximately $11 higher per month.

This is for the average retiree. Your individual result depends on your benefit amount:

• If your benefit is $2,000/month: Your COLA adds $56. After the $17.90 Part B increase, your net gain is about $38.10.
• If your benefit is $1,500/month: Your COLA adds $42. After the $17.90 Part B increase, your net gain is about $24.10.
• If your benefit is $640 or less: Your COLA may not fully cover the Part B increase. The hold harmless rule (see the next question) steps in to protect you.

None of this accounts for the Part B deductible increase ($26/year), Part D cost changes, or any Medigap or supplemental premium changes — those vary by individual plan and could absorb more of the COLA gain.

The hold harmless rule is a legal protection built into the Social Security Act. It guarantees that your net Social Security payment — after Medicare Part B is deducted — can never be lower than what you received the previous year. In other words, Medicare can never eat your entire COLA increase and then some, making your check smaller than last year.

How it works with a real example: Suppose your monthly Social Security benefit is $300 in 2025 and your Part B premium of $185 was already deducted, leaving you with $115 in hand. In 2026, your COLA adds $8.40 (2.8% of $300 = $8.40), making your gross benefit $308.40. But the Part B premium jumped to $202.90 — $94.50 more than your whole COLA gain. Without protection, your net check would drop. The hold harmless rule prevents that: your net check stays at $115, and only $193.40 is taken out for Part B (not the full $202.90).

For 2026, about 4 million low-income Social Security beneficiaries receiving approximately $640 or less per month are protected by this rule. The COLA of 2.8% produces a large enough dollar increase for the vast majority of beneficiaries (those receiving more than $640/month) to fully absorb the $17.90 Part B increase without needing this protection.

Important — who does NOT get hold harmless protection:

• New Part B enrollees (first year of Medicare)
• People subject to IRMAA (the higher-income premium surcharge)
• People whose Social Security benefit amount changed for any reason during the year
• People who do not have their Part B premium automatically deducted from their Social Security payment

Yes — if your income is above certain thresholds, you pay a higher Part B premium through what is called the IRMAA (Income-Related Monthly Adjustment Amount). This is an additional surcharge on top of the standard $202.90 premium, based on your modified adjusted gross income from your 2024 tax return.

The 2026 IRMAA brackets (based on 2024 income):

• Up to $109,000 individual / $218,000 joint: Standard $202.90/month — no surcharge
• $109,001–$137,000 individual / $218,001–$274,000 joint: $284.10/month total
• $137,001–$164,000 individual / $274,001–$328,000 joint: $365.30/month total
• $164,001–$500,000 individual / $328,001–$750,000 joint: Higher tiers up to $689.90/month
• Over $500,000 individual / over $750,000 joint: $689.90/month total

Only about 8% of Medicare Part B enrollees pay IRMAA surcharges. But there is an important trap to watch: income events that happened in 2024 — selling a home, taking a large 401(k) withdrawal, receiving an inheritance, or collecting on a pension lump sum — could push your reported income into a higher IRMAA bracket for 2026, even if your ongoing retirement income is modest.

If your income has dropped since 2024 because of retirement, divorce, or death of a spouse, you can file a Life Changing Event form (SSA-44) with Social Security to request a lower IRMAA based on more recent income. You do not have to pay the surcharge indefinitely if your circumstances changed.

There is actually good news on Part D — a welcome counterbalance to the Part B increase. According to MedicareResources.org, the average premium for standalone Part D prescription drug plans (PDPs) is decreasing from $38.31/month in 2025 to $34.50/month in 2026. That is a reduction of about $3.81 per month on average.

Similarly, the average premium for Medicare Advantage plans with integrated drug coverage (MA-PDs) is dropping slightly — from $13.32/month to $11.50/month on average. And according to KFF (Kaiser Family Foundation), about 98% of Medicare beneficiaries have access to a Medicare Advantage plan with no additional monthly premium beyond the Part B premium.

The major Part D benefit that remains in place: the $2,100 annual out-of-pocket cap on covered prescription drugs (up from $2,000 in 2025). Once you hit this amount in covered drug costs, your cost-sharing stops completely for the rest of the calendar year. This cap was created by the Inflation Reduction Act and represents the most significant prescription drug protection for seniors in decades.

Also continuing in 2026: insulin is capped at $35/month per covered product, and all ACIP-recommended adult vaccines (shingles, RSV, hepatitis A & B, Tdap) are $0 under Part D.

Medicare Advantage (Part C) can be a useful way to manage costs — but it requires careful comparison before switching. Here is an honest look at both sides:

Potential benefits of Medicare Advantage:

• Most plans have no additional premium beyond Part B — you still pay the $202.90 Part B premium, but nothing extra
• Many plans include prescription drug coverage, dental, vision, and hearing — benefits not covered by Original Medicare
• About 32% of individual MA plans in 2026 even offer a Part B premium reduction, potentially lowering what you pay
• The Part D drug cap ($2,100) still applies

Important tradeoffs to understand:

• MA plans use provider networks — you may not be able to see every doctor who accepts Medicare
• Prior authorization is required for some treatments and specialists
• If you later want to switch back to Original Medicare, you can be denied by Medigap insurers in most states (you could be subject to medical underwriting)
• Some major insurers including UnitedHealthcare scaled back their MA offerings for 2026 — check whether your specific plan is continuing

KFF estimates that more than 34 million Medicare beneficiaries — over 54% of the Medicare-eligible population — were enrolled in Medicare Advantage in 2025. It is the mainstream choice, but “mainstream” does not mean right for everyone. The best advice is to compare your specific drugs, doctors, and expected healthcare use using the Medicare Plan Finder at Medicare.gov before switching.

Homeowners insurance costs have been rising significantly in recent years, and the 2.8% COLA is generally not keeping pace with those increases in many parts of the country. According to Inszone Insurance’s 2026 forecast, homeowners insurance continues to face upward pressure due to climate risk — particularly in states affected by wildfires, hurricanes, and flooding.

The drivers of homeowners insurance increases are different from Social Security’s COLA formula:

• Climate and catastrophe risk: Increasing frequency and severity of natural disasters has raised claim costs for insurers nationwide
• Reinsurance costs: The cost insurers pay to re-insure themselves against major disasters remains elevated globally, and those costs are passed to policyholders
• Rebuilding costs: Labor and material prices remain higher than pre-pandemic levels, increasing the cost insurers pay when claims are filed
• Non-renewal wave: In the highest-risk states (especially California, Florida, Louisiana), some insurers have stopped offering coverage entirely, forcing homeowners into state-backed plans or expensive surplus-line insurers

The honest answer is that in high-risk states, homeowners insurance increases can be 20%, 30%, or even more in a single renewal — far outpacing the COLA. In lower-risk areas, increases are typically more moderate but still generally above the 2.8% adjustment rate. Reviewing your coverage limits (which should match current rebuilding costs, not original purchase price) and shopping alternative carriers annually is worthwhile.

Auto insurance saw sharp increases between 2022 and 2024 — some households saw 30–40% premium hikes over two or three years. The good news for 2026 is that those increases are slowing significantly. Inszone Insurance’s 2026 rate forecast describes the auto market as moving from “shock increases” to a “slower climb.”

For senior drivers specifically, a few things to consider:

• Safe driver status helps: Seniors who have maintained clean driving records and drive fewer miles may see relatively stable or only modest increases. Some carriers reward low mileage with usage-based programs.
• Completing a defensive driving course — including AAA’s RoadWise program for drivers 55 and older — can qualify you for auto insurance premium discounts with most major insurers. This is one of the few direct ways to offset premium increases through your own action.
• Shopping around still matters: Auto insurance is one of the most competitive insurance markets. Getting quotes from two or three carriers at renewal (not just accepting auto-renewal from your current insurer) can often find meaningful savings.
• Bundling home and auto with one insurer typically provides a 5–15% discount on both policies.

The 2.8% COLA is unlikely to fully cover auto insurance increases for most seniors in 2026, but the gap is much smaller than in the 2022–2024 period of extreme auto rate hikes.

Several official programs directly help low-income seniors manage health care costs. Many people who qualify for these programs never apply:

• Medicare Savings Programs (QMB, SLMB, QI): These state-run programs help low-income Medicare beneficiaries pay their Part B premiums, deductibles, and copays. The Qualified Medicare Beneficiary (QMB) program — for those at or below 100% of the Federal Poverty Level — can eliminate your Part B premium entirely. Apply through your state Medicaid office.
• Extra Help (Low Income Subsidy for Part D): For people with limited income and resources, this federal program covers most Part D prescription drug costs — reducing copays to just $5.10 for generics and $12.65 for brand-name drugs in 2026, with no deductible. Worth approximately $5,700–$6,200/year in value. Apply at SSA.gov or call 1-800-772-1213.
• IRMAA appeal for life events: If your income dropped significantly in 2024 or 2025 due to retirement, death of a spouse, divorce, or loss of pension income, you can request a reduction to your IRMAA surcharge. File Form SSA-44 with the Social Security Administration.
• State Pharmaceutical Assistance Programs (SPAPs): Many states offer supplemental drug cost assistance on top of federal programs. Availability varies by state.
• SHIP (State Health Insurance Assistance Program): Free, unbiased counselors who help you navigate Medicare plan options, compare plans, and apply for assistance programs. Available in every state. Call 1-800-MEDICARE to find yours, or visit shiphelp.org.

Yes — and the data shows most seniors do not do this even though it can save significant money. KFF (Kaiser Family Foundation) found that nearly seven out of ten Medicare beneficiaries do not compare plan options during the fall open enrollment period, even though plans change meaningfully from year to year.

Medicare Open Enrollment runs from October 15 to December 7 each year. During this period, you can:

• Switch from Original Medicare to a Medicare Advantage plan (or back)
• Change your Medicare Advantage plan to a different one
• Switch Part D prescription drug plans

Why does it matter enough to act on each year? Because plans change. Premiums change. The formulary (list of covered drugs) changes. A drug that was on Tier 2 (lower copay) in your plan may move to Tier 4 (higher copay) in 2026 with no notice beyond your Annual Notice of Change (ANOC) mailed in September.

The Medicare Plan Finder at Medicare.gov lets you enter your specific prescriptions, your preferred pharmacy, and your preferred doctors to see exactly what each plan would cost you based on your actual situation — not just the premium. This is the single most effective action most seniors can take each fall to protect their budget.

If your Medicare Advantage plan is being discontinued or leaving your area, do not panic — but do act promptly. You have special rights in this situation that differ from the standard enrollment rules:

1. You will receive written notice from your insurer. By law, if your plan is being discontinued, your insurer must send you an advance notice. Read this notice carefully — it will explain when the plan ends and what your options are.

2. You have a Special Enrollment Period (SEP) that lets you choose a new Medicare Advantage plan or switch to Original Medicare during a specific window. You do not have to wait for the fall open enrollment period.

3. If you switch to Original Medicare during this SEP because your MA plan was discontinued, you have a guaranteed issue right to purchase Medigap (supplemental) coverage — meaning insurers cannot deny you or charge you extra for pre-existing conditions. This is a powerful right that normally does not exist, so use it if needed.

4. Compare all options using the Medicare Plan Finder at Medicare.gov before choosing. Enter your specific drugs, doctors, and pharmacy to see real cost comparisons, not just premium amounts.

5. Call your state’s SHIP (State Health Insurance Assistance Program) for free, unbiased help. Counselors are experts at navigating exactly this situation and can help you avoid costly mistakes. Find yours at shiphelp.org or by calling 1-800-MEDICARE.