Traditionally, as we approach the 4th quarter each year, we have come to expect the announcement of various Social Security changes for the upcoming year. Probably the most highly anticipated of these changes is the annual Cost of Living Adjustment (COLA). COLA, of course, is the automatic inflation adjustment meant to keep our Social Security benefit payments somewhat in line with rising consumer prices. Despite the nagging feeling most of us have that COLA falls short of that goal, it is nevertheless something we all depend on.  But as we contemplate an estimated 2.7% Social Security COLA increase for 2026, we must wonder what that actually will mean in terms of dollars added to our pockets each month.  And, unfortunately, the outlook isn’t rosy. First, let’s understand how COLA is determined and paid.

Determining COLA

COLA for Social Security (as well as for other government payments) is determined by the year-to-year difference in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the “CPI-W.” Only the CPI-W for the third quarter of each year (the months of July, August, and September) counts, and if the current year’s CPI-W for the 3rd quarter is more than the CPI-W for the same period last year, the difference becomes the COLA increase for the forthcoming year.  COLA for Social Security is applied to each beneficiary’s gross December benefit, which is received in January, thus next year’s COLA payments start in January each year.  Everyone who receives Social Security (or is eligible for it) will receive each year’s COLA increase. With 2026 COLA expected at 2.7%, that means the average SS recipient (receiving about $2000 per month) can expect their gross Social Security benefit to go up by about $54. But there is a somewhat complex dynamic between COLA and Medicare premiums which could mean that the actual dollar change in your monthly Social Security payment may not be as much as the COLA percentage paid. And that’s because Medicare premiums, which are deducted from each person’s Social Security payment, usually change yearly too, resulting in a net Social Security payment smaller than expected.

The 2026 Medicare Premium

“Original Medicare” consists of two “parts:”  Part A, which is insurance coverage for inpatient hospitalization services, and Part B which is insurance coverage for outpatient medical services (doctors, medical tests, etc.).  For those eligible for Social Security, there is no premium for Medicare Part A[1] (inpatient hospitalization coverage), but the Medicare Part B (coverage for outpatient healthcare services) premium is paid by all who are currently enrolled in Medicare Part B. 

The Part B premium amount is developed each year by Medicare based on estimates of the coming year’s costs for the program. The Federal Government pays the lion’s share (75%) of these Medicare program costs, leaving about 25% to be paid by those enrolled in Medicare Part B. So, based upon estimated program costs for the coming year, 25% of those costs are allocated to those expected to be enrolled in Part B, yielding next year’s Part B premium amount.

Medicare’s Part B Premium and COLA

Medicare premiums typically change each year.  For 2025, the Medicare Part B premium was $185/month but, starting in January 2026, the Medicare Part B premium will increase to $206.50/month – a monthly increase of $21.50. And that increase in Medicare’s Part B premium will be taken from your annual Social Security COLA increase, which means that the average net Social Security payment increase will only be about $32.50 (instead of $54), or an average percentage increase of only about 1.6%. In effect, your annual COLA is added to your gross Social Security benefit amount, but since your Part B Medicare premium is deducted from your Social Security payment, you will not see the full COLA increase in your net SS payment. This is a relatively simple mathematical exercise, but it becomes more complex for others whose Social Security benefits is less than the “average” monthly amount. For example, what if the COLA increase to one’s monthly SS benefit isn’t enough to offset the monthly Medicare Part B premium increase?

The ”Hold Harmless” Provision

The so-called “hold harmless” provision of Social Security stipulates that your monthly Social Security payment cannot go down due to an increase in Medicare premiums. For those with a smaller monthly Social Security payment, their annual COLA increase may be insufficient to pay for the increase to the new Medicare Part B premium. In this case, the SS beneficiary is “held harmless” from the Medicare premium increase, by limiting the person’s Medicare premium to a lower amount such that their net monthly Social Security payment does not go down. In other words, a lower Social Security payment may result in the person paying less than the standard Medicare Part B premium each month. For example, someone with a monthly SS payment of $500 would only get a COLA increase of $13.50,which is less than the $21.50 increase in their monthly Medicare Part B premium.  In that case, the “Hold Harmless” provision would result in their Part B premium payment from their Social Security benefit being lowered to $198.50 (rather than $206.50), so that their net Social Security payment would not be reduced. But “hold harmless” doesn’t apply in all cases.

When “Hold Harmless” Doesn’t Apply

The “hold harmless” provision does not apply if there is any change to the beneficiary’s Social Security benefit amount. For example, if a spouse changes from SS retirement benefits to a higher monthly spousal benefit, hold harmless would not apply and the full amount of the Medicare premium increase would be taken from the higher Social Security payment. Hold Harmless would also not apply in cases where the beneficiary is subject to Medicare’s “IRMAA” (Income-Related Monthly Adjustment Amount) clause (IRMAA requires a higher Medicare premium for those with higher taxable income).  IRMAA typically applies if someone has substantial taxable income, for example, from IRA or 401(k) withdrawals, required minimum distributions (RMDs), sale of property, etc.).  Also, Social Security’s “hold harmless” provision does not apply to those who are enrolling in Medicare Part B for the first time, nor to those who pay their Medicare Part B premiums directly to Medicare (e.g., those not yet receiving Social Security benefits).

[1] Part A coverage is funded from FICA/SECA payroll taxes on working Americans.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.