2021 Cost of Living Adjustment for Federal Benefits: How it Affects You

There is good news and bad news regarding the annual cost of living adjustment (COLA) for veterans’ disability pay rates and other federal benefits. The good news is that there will be an increase in compensation of 1.3%, and that it is more than some observers predicted earlier in the year. The bad news is that in the grand scheme of things, it is still not a very large increase.

For instance, Supplemental Security Income will increase from $783 to $794 as a maximum monthly benefit. For Medicare recipients, costs go up slightly: the Medicare Part B premium will increase from $144.60 to $148.50.

How is the COLA Calculated?

Adjustments of monthly VA compensation and other federal benefits are tied to the Social Security Administration’s (SSA) calculations of the annual change of the cost of living in the United States. This COLA, made each year, means that VA benefit payments can keep pace with the inflation rate.

How does the SSA determine how much the cost of living has increased? By examining how much the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has increased over a year—specifically, from the third quarter of the previous fiscal year to the third quarter of the current one. The CPI-W tracks the price of a “market basket” of consumer goods and services, including housing; transportation; clothing; medical care; education and communication; recreation; and other goods and services.

So, in a nutshell: the SSA looks at how much certain essentials have increased in price over the course of a year and calculates how much more recipients of federal benefits should be paid in order to be able to afford the same standard of living as the previous year. Federal programs increase their benefits accordingly. If you receive veterans’ disability benefits, Medicaid, or other federal benefits, how does this annual increase affect you?

Adjustments to VA Benefits

Veterans and their surviving spouses with a non-service connected disability are eligible for an increased benefit through the Aid and Attendance program. Aid and Attendance benefits are available to veterans who receive a VA pension and are either confined to bed, need extra assistance with activities of daily living, have severely limited eyesight, or are in a nursing home due to disability.

Under the 2021 COLA, a single veteran may now be eligible for up to $1,937.00 in Aid and Attendance benefits each month. A qualifying surviving spouse may be able to receive up to $1,530.00 per month. For married couples in which one spouse is a veteran, income from Aid & Attendance can be as high as $2,295.00 per month. If both spouses in a married couple are veterans, the benefit may go up to as much as $3,071.00.

Aid and Attendance is a very helpful, but little-known benefit. If you believe that you, a spouse, or your aging parent may qualify, please contact our office for assistance.

Adjustment to Medicaid Gross Income Limit

If you receive Medicaid benefits, or if you help an older family member manage their own Medicaid benefits, you should be aware that the gross income limit for Medicaid eligibility has increased to $2,382 per month.

If you or your loved one have a qualified income trust (QIT) in effect, this increase is unlikely to affect you. However, those without a QIT should be on alert: if a COLA has increased monthly gross income beyond $2,382, it may be necessary to create and fund a QIT in order to remain eligible for Medicaid benefits.

What is a QIT? Also known as a Miller trust or a qualifying income trust, a QIT is a trust established to hold monthly income above and beyond the amount permitted to qualify for Medicaid. When these excess funds are in a QIT, the Ohio Department of Medicaid does not count that income when evaluating the individual’s eligibility for Medicaid.

This is critical for residents in long-term care facilities such as nursing homes. If they exceed the Medicaid monthly income limit, they become ineligible for the Medicaid benefits that are likely helping them pay for the care facility. Since the annual cost of living adjustment can increase monthly income without a beneficiary being aware of it, a QIT is an important tool for maintaining Medicaid eligibility. Funds in a QIT can be used only for limited purposes, and Ohio rules governing a QIT are strict, so it is important to work with an attorney who is experienced in the creation and funding of these trusts when setting up a QIT for you or a loved one.

If you would like to learn more about qualified interest trusts, how to establish one, or Medicaid planning in general, please contact one of Gudorf Law's Ohio offices to schedule a consultation.