With two months (August and September) to go in the cost-of-living countdown, federal, military and Social Security retirees are eagerly awaiting their 2018 cost-of-living adjustment (COLA). Last month, the COLA — based on the nationwide rise in living costs measured by the Labor Department’s Bureau of Labor Statistics — stood at 1.6 percent, but the Consumer Price Index for the month of July dipped slightly, dropping the estimate to 1.52 percent. The actual amount of the 2018 COLA will be based on the average of the indices of July, August, and September, in comparison with the previous year’s third quarter average. The final number won’t be known until mid-October.
Any COLA increase is a plus because retirees (as well as most federal workers) can expect their 2018 health insurance premiums to go up. This year, the average premium increase was about 4.4 percent, but that, like most averages, is misleading because the increases varied greatly among the 20-plus plans offered to the 8 million-plus federal workers, retirees and their survivors.
The 2018 open season, when workers and retirees pick their coverage for next year, will begin in mid-November and run through early December. The health care debate in Congress — whether to reform, repeal or let stand the Affordable Care Act (Obamacare) has no direct impact on current or former feds under the Federal Employee Health Benefits Program. Regardless of how much FEHBP premiums go up next year, the government, by law, will continue to pay an average of 72 percent of the premium for white-collar feds and retirees, and up to 75 percent (thanks to their union contracts) for postal workers.
While an inflation adjustment of “only” 1.7 percent (if that number holds) doesn’t seem like much, it is quite respectable in light of the low inflation rate for the last couple of years. Retirees didn’t get any COLAs in 2010, 2011 and 2016. The inflation catch-up they got in 2017 was a mere 0.3 percent, which barely made a dent in higher health insurance premiums and much higher long-term care insurance premiums for federal and postal workers and retirees.
Retirees got 1.7 percent in 2013, another 1.5 percent in 2014 and 1.7 percent in January 2015. While considered small by many retirees, the compounding effect of any increase is important. Few private-sector pension packages offer any inflation-protection for their retirees. Some who retired on a $1,000 per month pension in 2000 would still be getting $1,000 today.
Many, if not most, private companies have dropped (if they ever offered) defined benefit retirement plans. Most of them require newer workers to finance their own retirement by paying into Social Security and 401(k) plans, which may, or more often do not, include any match from the employer. Uncle Sam, by contrast, will match employee contributions by up to 5 percent for the majority of workers under the FERS retirement program.
The last substantial COLAs that retired feds, military retirees and people under Social Security got was a 5.8 percent adjustment in 2009 and a 4.1 percent increase in 2006.
Under law, retirees under the FERS program do not get any cost-of-living adjustment until they reach age 62. CSRS retirees qualify for full COLAs regardless of age. Once FERS retirees reach age 62, they get full COLAs up to 2 percent and so-call diet COLAs (less than the full inflation rate) for increases over 2 percent.
The Trump administration has proposed a diet COLA system for CSRS retirees and elimination of future inflation-adjustments for current and future retirees under the old CSRS program.
The National Active and Retired Federal Employees has warned that reducing or abolishing future COLAs could cost both current and future retirees tens of thousands of dollars in lifetime income.