The 2025 Social Security Adjustment That Will Affect Medicare

Every year, Social Security benefits go through a cost-of-living adjustment, or COLA. The adjustment is made by the Social Security Administration, based on the Consumer Price Index, and is intended, in the administration's own words, to "ensure that the purchasing power of Social Security benefits and SSI payments is not eroded by inflation."

The COLA for 2025 was made public late in 2024. The rate was 2.5%, down slightly from the previous year and significantly down from 2022's 8.7%, due to the cooling of inflation over the last few years. It's one of a number of adjustments to social security taking effect in 2025, along with COLA notifications and a modest adjustment in the maximum amount of income subject to social security taxes.

But 2025 is also bringing changes to Medicare. Part B, responsible for preventative care and necessary services, has its deductibles and premiums adjusted every year too, under the Social Security Act. The premium has gone up to $184 for 2025 (per the Centers for Medicare & Medicaid Services), up from $174.70. And that has some bearing on the overall value of Social Security benefits by what it takes out of COLA.

Remember that the point of the cost-of-living adjustment (COLA) to Social Security benefits is to keep their value constant; in other words, no matter what's happening with inflation, a beneficiary can still get the same amount out of their money. And COLA applies to all Social Security payments. But it's also true that many Social Security beneficiaries are on Medicare. It's an automatic process to enroll those receiving benefits in Medicare, and those who choose to stay with Medicare for their heath care needs can have their premiums automatically deducted from their Social Security benefits.

So when the premiums for Medicare or its supplemental plans go up, it has the effect of eating into the benefits one receives through Social Security. In this case, per AARP, the offset is the same amount that Medicare Part B premiums increased: $10.30 a month. Not ideal, perhaps, but fortunately not an offset that's likely to break the bank for anyone.

COLA stands for "cost-of-living adjustment," and its exactly what it's name proclaims it to be — an annual adjustment to Social Security benefit amounts that accounts for inflation and other factors that increase the cost of living for beneficiaries. It's important to note that COLA isn't necessarily enacted to be strictly in line with just one inflationary metric, but rather the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If the CPI-W has increased, a COLA is applied to Social Security benefits, increasing the monthly payment amount for all eligible recipients.

The end result is designed to help Social Security beneficiaries maintain their spending power in the face of rising prices. The practice helps to maintain the living standard of millions of Americans who otherwise would face significant hurdles in covering basic monthly expenses — and this is especially true for those who entered retirement without a large nest egg.