Will Social Security Be Enough in 2025? A Look at Healthcare Costs and How To Plan Accordingly
Written by
Vance Cariaga
Edited by
Zuri Anderson
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Social Security beneficiaries will get a 2.5% cost-of-living adjustment (COLA) in 2025, which is the lowest increase since 2021 and down from 3.2% this year.
The new COLA will boost the average retirement check by only $48 a month, according to The Senior Citizens League (TSCL), and some fear it won’t be sufficient to offset rising healthcare costs.
The 2.5% increase is “nowhere near enough” to cover the “true cost of living” facing seniors, according to Ramsey Alwin, president and CEO of the National Council on Aging.
“Our research… shows that about half of households with adults age 60 and older have an average income below what they need to cover their basic needs,” Alwin said in a statement shared with GOBankingRates. “Social Security must keep up with this reality.”
GOBankingRates spoke further with Alwin and consulted research to see how this will affect Social Security recipients’ healthcare costs next year, and what they can do to prepare.
How the COLA Affects Social Security Recipients
Social Security benefits provide the lone source of income for more than one-quarter (28%) of recipients, according to Census Bureau data cited by Alwin.
Meanwhile, research from TSCL found that two-thirds of seniors depend on Social Security for more than half their income, and 62% worry their retirement income won’t even cover essentials such as groceries and medical bills.
One problem often cited by critics is that Social Security’s annual COLA calculation does not do a good enough job of accounting for healthcare costs and other common expenses for older Americans.
The current COLA formula is based on third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But senior advocates recommended basing it on the Consumer Price Index for the Elderly (CPI-E), which puts a bigger emphasis on healthcare costs.
“Seniors — and TSCL — demand that Congress takes immediate action to strengthen COLAs to ensure Americans can retire with dignity, such as instituting a minimum COLA of 3% and changing the COLA calculation from the CPI-W to the CPI-E,” TSCL Executive Director Shannon Benton said in an Oct. 10 press release.
It might take many years for the COLA formula to be changed, however. For now, seniors will have to get by on the 2.5% adjustment approved for 2025 — and that could be a challenge.
What About Healthcare Expenses?
Research from PwC projects that overall medical and healthcare costs could rise as much as 8% in 2025 due to inflation, prescription drug spending and behavioral health utilization.
“The same inflationary pressure the healthcare industry has felt since 2022 is expected to persist into 2025,” PwC noted in the report. “Innovation in prescription drugs for chronic conditions and increasing use of behavioral health services are reaching a tipping point that will likely drive further cost inflation. Meanwhile, cost deflators are not enough to offset cost inflators.”
On the bright side, seniors will get certain breaks from Medicare in 2025. As the AARP recently reported, there will be a $2,000 annual cap on out-of-pocket costs for covered drugs. The new cap applies to stand-alone Part D and Medicare Advantage (MA) plans with drug coverage.
A new report published by the AARP estimates that by 2029, more than 4 million people with a Medicare drug plan who don’t receive the program’s low-income subsidy will hit the annual ceiling and “see savings” when they fill prescriptions.
The Centers for Medicare & Medicaid Services also announced that average monthly premiums in 2025 will be $40 for stand-alone Part D plans, a decrease of $1.63 from 2024. Average monthly premiums for MA plans will decrease by $1.23 to $17.
For seniors who want to offset higher healthcare costs, the Chapter Medicare website offered these tips:
- Maximize your Medicare benefits: One way to do this is to sign up for a Medicare Advantage plan, which offers perks such as lower Part B premiums, fitness programs, transportation to medical appointments, and assistance with certain medical equipment.
- Work around your deductible and out-of-pocket maximum: After you hit your annual deductible, you can reduce your out-of-pocket expenses by taking care of doctor visits and procedures before the end of the year.
- Buy generic or comparable prescriptions: Opting for lower-priced generic medicines can save you a lot of money. You can even save money by switching the form of drug (e.g. capsule versus tablet versus softgels).
- Compare pharmacy prices: Not all pharmacies charge the same prices for the same products, so do some price checks before committing to buying the drugs you need.
- Pay attention to preventive care: Medicare and other health plans cover preventive and screening services that can improve your health and help you avoid costly and potentially life-threatening medical conditions. Be sure to schedule annual wellness exams, receive screenings, get needed vaccinations and make healthy lifestyle choices.
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