Social Security and Medicare dodged a bullet in the debt ceiling battle, but beneficiaries still have plenty to fear from the next phase of the deficit reduction war.

The agreement to raise the debt ceiling means seniors will receive their August Social Security benefits – something many worried about after President Obama said last month that he “couldn’t guarantee” the payments if default occurred. Likewise, Social Security and Medicare benefits both were exempted from the $917 billion in first-phase cuts that paved the way for the debt ceiling deal.

But major benefit cuts seem likely to emerge from the second phase of this process. A 12-member Congressional committee must identify another $1.5 trillion in spending cuts, bringing the total deal to $2.4 trillion in cuts over 10 years. That group will have a November 23rd deadline to finish its work, which will then go to an up-or-down vote – no modifications allowed – by Dec. 23rd.

What’s more, if the committee cannot agree on at least $1.2 trillion in savings, or Congress rejects its findings, automatic spending cuts totaling that amount would kick in starting in 2013. Medicare would be subject to the automatic cuts, although Social Security and Medicaid would be exempt.

The enormous pressure to identify $2.4 trillion in cuts boosts the odds that Social Security benefit cuts will be proposed.

Learn more in my column today at Reuters Money.

Tags | Medicare, Social Security