The Unfairness and Inadequacy of Social Security Cost of Living Adjustment Increases

Reductions in the purchasing power of one’s income occur when cost-of-living increases just keep up with the rate of inflation and are simultaneously accompanied by greater imposed costs. This has happened to Social Security recipients who are on Medicare. The 2025 Social Security Cost of Living Adjustment (COLA) of 2.5% is being undermined by the increase cost of Medicare.[1]

The monthly Medicare cost in 2025 will rise 5.9% to $185/month from $174.70/month in 2024. This increase is more than twice the Social Security COLA. In 2024, when the Social Security COLA was 3.2%, Medicare also went up 5.9% from $164.90/month to $174.70/month.[2] Additionally, one may incur other increases in Medicare costs. Its deductible is going up in 2025 to $257 from $240.

According to the Social Security website,  the purpose of its COLA is “to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.” However, for many, the Medicare increase undermines this purpose.

In 2024, the average Social Security payment to a retired worker came to $1,920.48/month.The 2.5% Social Security COLA raises their monthly payment by $48/month. Factoring in the 5.9% increase for Medicare, their actual Social Security COLA increase comes to less than 2%.  For those entitled to less than the average Social Security payments who pay for Medicare, their real COLA is even smaller.

Additionally, this flat amount Medicare increase means that those with lower Social Security benefits, who presumably can least afford an increase in their Medicare premiums, are charged the same as those who are in a better position to afford the increase.

The impact of an across-the-board percent increase in Social Security payments is also highly unequal. Those recipients of the highest monthly amount receive the biggest dollar increase.  The maximum Social Security benefit in 2024 was $4,873/month. With the 2.5% increase, one entitled to the maximum will see their benefit for the year go up by $1,462 while a retired worker who is a recipient of the average benefit (of $1,920/month), and more likely to have unmet needs, will end up with a much lower increase of $576.

Those with higher total incomes may experience a further erosion in the 2.5% COLA since as much as 85% of their social security payments can be subject to income taxes.

In the message I received from Social Security with the title “Notice of Cost-of-Living Adjustment (COLA),” I was informed that I can use this letter as proof of my benefit amount if I need “to apply for food, rent, or energy assistance.”  Shouldn’t the amount one is receiving from Social Security be enough so that one does not have to apply for assistance to cover the costs of basic needs?

More funds could easily be raised to enable the government to provide people with greater Social Security benefits so they do not need to apply for assistance. Reducing military spending and ending corporate subsidies could certainly free up money. Higher taxes on the rich, including a wealth tax, and increasing the employer’s match of their employees’ Social Security tax deduction could raise more funds. Imposing Social Security taxes on rent collected and unearned income including interest, dividends, and capital gains (especially since much of the latter two is taxed at a lower income tax rate than income earned from a job) would raise more revenue. Additionally, by subjecting all earned income to Social Security taxes, not just the first $176,100, as is the rule in 2025, could be used to raise even more revenue.

In 2025, a worker making up to $176,100, and everyone else earning less, including a low wage worker, pays Social Security taxes at the rate of 6.2% on their earnings. Under the current system, a person earning $5 million pays the same amount of money in Social Security taxes as one earning $176,100. The person with the $5 million dollar salary pays Social Security taxes of less than .22% of their total salary. That person should be paying Social Security taxes on all of their earned income and, preferably, at a higher rate than 6.2%.

These possible solutions, that could raise enough revenue so Social Security covers peoples’ basic needs, will likely not be enacted. Instead, we face the likely prospects of being bombarded with claims by “responsible” politicians, “economists,” and others, all helped by the media, with layers of more bs about how Social Security will soon face a shortfall of funds crisis necessitating cuts in payments and/or that the best solution to this claimed crisis is that Social Security be privatized.

Notes.

1, The Social Security COLA increase is based on the rise in the consumer price index from the third quarter of the last year to the third quarter of the current year. In 2024, when the Social Security COLA was up 3.2% (based on consumer prices being up from the third quarter of 2022 through the third quarter of 2023), consumer prices were up 3.4% for the whole year in 2023.

2.The charge for Medicare is generally based on one’s income reported on a tax return two years before the current year. In 2023, if a single person’s income is just $1 above $106,000 or $212,000 for a married couple filing a joint tax return, they hit a fiscal cliff in 2025. Their Medicare monthly premium in 2025 goes up to $259 per person. Those with incomes greater than $133,000 for a single person or $266,000 for a couple filing jointly pay even more for Medicare. See:

https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles

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