Social Security beneficiaries must swallow flat COLA in 2017

Zilch. Nada. Diddly squat.

Take your pick of words that best describe the Social Security inflation adjustment announced this week, but it all adds up to this: another year of flat benefits. The U.S. Social Security Administration declared a 0.3 percent cost-of-living adjustment (COLA) for 2017 – a bit more than the zero increase in 2016. But the entire increase likely will go to straight into higher Medicare Part B premiums, which are deducted from benefit payments for most retirees.

The Social Security COLA has lacked fizz for much of the past decade. It has been less than 2 percent since 2009, with the exception of 2011 when it was 3.6 percent. For three years there was no inflation adjustment at all.

By law, the COLA is determined by an automatic formula tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Produced by the U.S. Bureau of Labor Statistics (BLS), the index gauges a market basket of goods and services purchased by working people, and it has been muted lately by low energy prices, said Max Gulker, senior research fellow at the American Institute for Economic Research.

“If you look category by category at prices that are up or down, energy is what is pulling things down overall,” he said. “The categories that are really rising are healthcare and education costs.”

Consider how this year’s meager COLA will play out for the typical retiree. The average Social Security beneficiary will receive a monthly raise of just $5, to $1,360, according to the SSA. But the five-spot could all go to healthcare.

Final Medicare premium figures will not be released until later this autumn. But projections by the Medicare trustees point to a sharp 22 percent increase in the monthly Part B premium (which covers outpatient services), to $149.

Federal law contains a “hold harmless” provision – the idea is to protect people enrolled in Social Security from a decline in their benefits. The rule prevents the dollar increase in the Part B premium from exceeding the dollar increase in a Social Security benefit – and it protects about 70 percent of Medicare enrollees.

But the hold-harmless rule effectively places the entire burden of higher Part B costs borne by enrollees (25 percent of overall program costs) on 30 percent of the Medicare population – one reason why the premium is expected to rise so sharply. Who would be affected next year by this inequitable structure?

Learn more in my Reuters Money column this week.

Speak Your Mind

*